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ANNUAL REPORT
201814201520162017
Asetek A/S
Assensvej 2
DK-9220 Aalborg East
Denmark
Phone: +45 9645 0047
Fax: +45 9645 0048
Web: www.asetek.com
Mail: [email protected]
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CVR-number: 3488 0522
ISIN-number: DK0060477263
LEI: 213800ATZVDWWKJ8NI47
André Sloth Eriksen
CEO
Peter Dam Madsen
CFO
BOARD OF DIRECTORS
Chris J. Christopher, Chairman
Jim McDonnell
Jørgen Smidt
Maria Hjorth
NOMINATION COMMITTEE
Ib Sønderby
Jørgen Smidt
Scott Pagel
AUDIT COMMITTEE
Chris J. Christopher
Maria Hjorth
COMPENSATION COMMITTEE
Jim McDonnell
Jørgen Smidt
EXECUTIVE MANAGEMENT
André Sloth Eriksen, CEO
Peter Dam Madsen, CFO
AUDITOR
PwC, State Authorized Public Accountants
Nobelparken, Jens Chr. Skous Vej 1
DK-8000 Aarhus C
Phone: +45 8932 0000
CVR-no 33 77 12 31
2 ASETEK A/S - A N N UA L R E P O RT 2 0 1 8
EXECUTIVE MANAGEMENT
Shareholders Information 6
Management Report 10
Statement by Management 25
Independent Auditor’s Report 28
Profit & Loss 31
Balance Sheet 32
Equity 33
Cash Flows 34
Notes 35
Annual Report 2018, Parent Company 56
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TABLE OF CONTENTS
Expect stricter environmental requirements for the benefit of the climate and Asetek 4
Asetek's engineers focus on future markets 8
New data center hybrid does not require plumbing 20
Asetek’s new eSports Academy and giving back to the community 26
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CEO COMMENT
EXPECT STRICTER ENVIRONMENTAL REQUIREMENTS FOR THE BENEFIT
OF THE CLIMATE AND ASETEK
It is only a matter of breaking habits
and showing genuine determination
The extreme growth in gigantic data centers around
the world is calling for more concern about our climate.
Even in Denmark alone, Asetek's home country, three of
the largest datacenter operators are well on the way to
becoming internationally focused giant centers.
In addition to the increased power consumption, there is a
huge potential in reusing the heat that the power-hungry
servers deliver. But nowhere have the politicians at this
point made energy demands on the companies behind
the servers. According to a projection from the Danish
Energy Agency, datacenters will account for as much as
17 percent of the total Danish electricity consumption
in 2030. An electricity consumption which the agency
estimates will have increased by one third in the period up
to 2030 - and primarily due to the increasing datacenter
consumption.
"This is mindboggling, considering the intensely increased
political emphasis currently on, for example, car manu-
facturers turning their production towards electric cars,"
notes André Sloth Eriksen, CEO of Asetek. “With the data
center power consumption projections that exist just
in Denmark, we would be able to heat the 3 largest pro-
vincial towns in Denmark alone with the waste heat from
these data centers.”
André believes that at some point it must dawn on the de-
cision makers how much energy and CO2 emissions can
be saved by requiring that datacenters use liquid cooling
solutions such as Asetek’s, which remove and absorb heat
directly on the source, the ever-hotter microprocessors.
An estimated four percent of the world's electricity con-
sumption goes to the operation of servers, half of which is
cooling - an energy consumption that Asetek's patented
water cooling as a rule of thumb can again halve.
“The same three large Danish provincial towns that
we talked about can, of course, be kept warm with the
reuse of the 60 degrees centigrade hot water that we
can collect and send out in the existing district heating
infrastructure. Far more meaningful than just sending it
out in nature, which is the consequence of traditional air
cooling,” continues André.
The datacenters will not even become more expensive,
since Asetek's approach does not require heat pumps
or anything else out of the ordinary. "It is only a matter of
breaking habits and showing genuine determination,"
says Asetek's CEO.
“In addition, keep in mind that for every kilowatt-hour
recycled heat, we save the CO2 that it would otherwise
take to produce that kilowatt-hour. Recycled datacenter
heat is 100 percent clean energy. If you imagine data-
centers, for example powered by wind turbines, the same
pure power will indirectly heat hundreds of thousands of
homes - just in Denmark,” adds André.
At Asetek, there is optimism about the climate efforts and
the potential positive financial impact on the company.
Over time, the increased political awareness will work for
liquid cooling solutions. For the same reason, Asetek has
in the past year been affiliated with a consultant based
in Munich, who will keep the company updated on the
EU's ongoing work around environmental legislation and
regulations.
Asetek has for many years been known only in the
industry as an OEM partner in a niche market for liquid
cooling of data centers, which has not yet really seen
a commercial breakthrough, even though Asetek has
entered into a cooperation agreement with Intel and is
a supplier of liquid cooling to some of the world's largest
supercomputer datacenters.
"Compared to smartphones and computers, Asetek and
its liquid cooling technology have not been presented
clearly enough for the politicians who have to make some
decisions. We are working to change this through meet-
ings with climate scientists,” says André Sloth Eriksen.
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SHAREHOLDERS INFORMATION
Asetek’s shares are listed on Oslo Børs. As of December
31, 2018, a total of 25,784,841 shares are issued, each with
a nominal value of DKK 0.1.
The share is classified in the “Information Technology”
sector by the stock exchange, and the ticker mark is
ASETEK.
The total market capitalization value at the end of 2018
was NOK 1,036 million (approximately USD 119 million)
which was a decrease of 63% from the market value at the
beginning of 2018.
245,340 shares were held by the Company on Decem-
ber 31, 2018 as treasury shares, primarily to support an
employee stock option program.
Each share provides one vote. The shares are marketable
securities and no restrictions have been set for the shares’
negotiability. The share register is maintained by DNB
Bank ASA - Verdipapirservice, Postboks 1600 Sentrum,
0021 Oslo, Norway.
OWNERSHIP
At the end of 2018, Asetek A/S had 644 shareholders,
some of whom are nominee accounts covering several
individual investors.
Members of Asetek A/S’s Board of Directors and
Executive Board owned or represented a total of 7.5%
of the share capital at the end of 2018.
1 JANUARY 2018
Asetek shares opened the year 2018 at NOK 99.10.
31 DECEMBER 2018
At the last trading day of the year, Asetek shares
closed at NOK 40.60, which was a decrease of 59%
from the beginning of the year. The Oslo Stock Ex-
change (OSE) Benchmark Index declined 2% in 2018.
The OSE Information Technology Index declined 19%
in 2018.
According to Asetek’s registrations, the following
shareholders possessed 5% or above of the share capital
as per December 31, 2018:
INVESTOR RELATIONS
Asetek aims to provide a consistent, high level of informa-
tion to its shareholders and other interested parties.
It is Asetek’s intention to conduct an active dialogue
with shareholders, analysts, the press and the public as
a whole. Communication with interested parties takes
place via the ongoing publication of notifications, investor
presentations and individual meetings.
The website www.asetek.com is the primary source of
information for interested parties. It is updated regularly
with information about Asetek’s activities and strategy.
Shareholders, analysts, investors, stockbrokers as well as
other interested parties who have questions regarding
Asetek are requested to inquire via the email address
[email protected], which is monitored by the
CFO.
Dividends. Asetek continues to invest its capital in the
development and marketing of its cooling products.
Asetek’s policy allows for distribution of a dividend to
its shareholders of up to 50% of the previous year’s net
income (after tax profits), after taking into consideration
the Company’s growth plans, liquidity requirements and
necessary financial flexibility.
Annual General Meeting: April 10, 2019
Q1 2019 Report: April 30, 2019
Q2 2019 Report: August 14, 2019
Q3 2019 Report: October 23, 2019
Shareholder Number of Shares %
The ATP Group 2,834,828 11.0%
UBS Switzerland AG 2,015,253 7.8%
Clearstream Banking SA 1,703,474 6.6%
Sunstone Technology 1,586,341 6.2%Ventures Fund
REPORTING CALENDAR FOR 2019:
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STOCK EXCHANGE NOTICES ISSUED IN 2018
ISSUE DATE SUBJECT
December 12, 2018 Notice of Extraordinary General Meeting 14 January 2019
November 2, 2018 Employee Stock Option Program
October 25, 2018 Asetek Announces Favorable Ruling in Chinese Lawsuit
October 24, 2018 Q3 2018: Hardware Enthusiasts and Gamers Drive Growth
October 23, 2018 Chairman Retires
October 17, 2018 Asetek Presents Third Quarter Results on Wednesday, 24 October
September 19, 2018 Mandatory Notification of Trade
September 19, 2018 Share Capital Increase upon Exercise of Warrants
September 11, 2018 Asetek Receives Order for New HPC Installation from Fujitsu
August 15, 2018 Q2 2018: Record quarterly revenue
August 7, 2018 Asetek Presents Second Quarter 2018 Results on Wednesday, 15 August
June 18, 2018 Disclosure of Shareholding
June 15, 2018 Update to Q2 and Full Year 2018 Desktop Revenue Guidance
May 29, 2018 Share Capital Increase upon Exercise of Warrants
May 16, 2018 Asetek Receives Order for New HPC Cluster from Fujitsu
May 4, 2018 Asetek Receives Follow-on Order from Penguin Computing
April 27, 2018 Mandatory Notification of Trade: Chairman Exercises Warrants
ISSUE DATE SUBJECT
April 25, 2018 Outcome of Annual General Meeting
April 25, 2018 Asetek Receives confirmation of HPC award from Quanta Computer
April 25, 2018 Q1 2018: Record Q1 revenue
April 18, 2018 Reminder: 2018 Q1 Results and Capital Markets Update
April 6, 2018 Share Capital Increase
April 3, 2018 Mandatory Notification of Trade
March 27, 2018 Mandatory Notification of Trade: CEO Exercises Options and Sells Shares
March 27, 2018 Notice of Annual General Meeting April 25, 2018
March 22, 2018 Sunstone Capital has sold 1,600,000 shares in Asetek A/S
March 21, 2018 Sunstone Capital contemplates sale of up to 1,600,000 shares in Asetek A/S
March 20, 2018 Invitation to Capital Markets Update
March 15, 2018 Asetek Announces Ongoing Collaboration with Intel on Liquid Cooling for
Servers and Datacenters
February 28, 2018 Q4 2017: Continued growth
February 21, 2018 Asetek Presents Fourth Quarter 2017 Results on Wednesday, 28 February
January 24, 2018 Asetek Receives Order from Fujitsu for Institute of Fluid Science at Tohoku University
January 2, 2018 Financial calendar
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ASETEK'S ENGINEERS FOCUS ON FUTURE MARKETS
We can not rest on our laurels. Asetek's quality
products can and must be optimized continuously
There is a quiet and concentrated bustle in the large, new-
ly decorated office landscape that houses Asetek's R&D
department. At the headquarters in Aalborg, most of the
company's approximately 30 dedicated engineers spend
much of their time in front of their many large computer
screens. Among other things, crunching thermal and
structural simulations and calculations, when they are not
meeting quickly and informally to discuss different angles
on the challenges of the day.
But what exactly is there to work on? Has Asetek not,
once and for all developed and patented CPU liquid
cooling, the focal point of the company's business
model, whether talking gaming or data center? We asked
Thomas Ditlev, who a year ago came to Asetek as VP
Global R&D. He came from the world-renowned pump
manufacturer Grundfos, which has remained a market
leader for decades.
“We cannot rest on our laurels. Asetek's quality products
can and must be optimized continuously, so we can retain
our leading role in the niche market of liquid cooling. And
expand the market so we take a larger share. We have no
doubt that the Asetek technology has the poten-
tial”, explains Thomas. He emphasizes that it is both the
choice of materials and the actual design of the individual
components that can be fine-tuned to improve the per-
formance in relation to energy consumption. Even small
improvements should always be sought after – such as
the rubber alloy in the tubes or – right down to the finest
detail - the calculation of the optimal cutting angles of the
fins on the copper cooling plate, or the dimensioning of
the heat exchanger, etc.
DEVELOPMENT AND DELIVERY TIME COMES DOWN
Some of the conditions that Thomas Ditlev is also
particularly aware of in relation to the competitiveness
of future Asetek products are – at the same time – to
reduce development and delivery time and thus the
costs as much as possible.
“It is already happening through digitization and simula-
tions that make us less dependent on physical prototypes
in the process. Prototypes that otherwise take much extra
time to build for each version. Just as we are even more
focused on manufacturing our components in Lego-like
modules for storage, so that they can be quickly assem-
bled, for example, with various interfaces that match the
relevant customer’s latest products”, explains Thomas.
With reference to his own experiences from Grundfos,
work is now being done to reduce the development time
at Asetek from 10-12 weeks to 4-6 weeks.
NEW PRODUCTS COMING
At the same time, Thomas suggests that Asetek's R&D
department now also focuses more on how other com-
ponents, and not merely the processors, can advanta-
geously be liquid cooled particularly in high performance
computers.
“We have new products on the way in 2019”, says Thomas.
“Today, it is also the increasingly powerful graphics
cards that emit significant heat and become the critical
component. And what about the many other compo-
nents that are part of a gamer PC or a large workstation?”
Opportunities abound.
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The Year 2018 Outlined
// Record revenue of $67.3 million representing
16% growth
// Gaming and Enthusiast revenue expands to $63.0
million, up 18% from 2017
// Operating income increases 60%, Adjusted
EBITDA grows to $9.4 million
// The year 2018 was a year of growth and
achievement for Asetek.
// Revenue in 2018 totaled $67.3 million, a record level
for the Company and growth of 15.7% over 2017
($58.2 million).
/ Gaming and Enthusiast (previously Desktop) revenue
of $63.0 million represented an 18% increase from
2017 ($53.2 million), fueled by significant growth in
shipments to the Do-it-Yourself (DIY) market.
/ Data center revenue of $4.3 million in 2018 was
lower than 2017 ($5.0 million), while the Company
developed new technology focused on in-rack
cooling and continued to expand its ecosystem
of OEM partners.
// Gross margin expanded to 38.9% in 2018 from 36.0%
in 2017. The growth primarily reflects higher average
selling prices (ASPs) associated with a richer mix of
Gaming and Enthusiast product shipments.
// Asetek earned operating income of $4.4 million
for the year, reflecting 60% growth from 2017
($2.8 million). Adjusted EBITDA was $9.4 million
in 2018, compared with $6.8 million in 2017.
/ Operating profit (adjusted EBITDA) from the Gaming
and Enthusiast segment was $20.7 million for the year,
an increase from $16.0 million profit in 2017. Revenue
growth in the Gaming and Enthusiast market was driven
principally by high volume shipments of Enthusiast/
DIY products to Asetek’s largest customers.
/ Operating loss (adjusted EBITDA) from the data
center segment was $7.3 million for the year, level with
2017 ($7.3 million). The data center spending reflects
investment in development, sales and marketing, pro-
duction resources and equipment/tools.
/ Headquarters expenses of $4.4 million increased from
2017 ($2.4 million) due to the effect of $1.0 million in
awards received from successful patent litigation in
2017 as well as foreign currency fluctuation.
// Operational achievements during the year:
/ Asetek continued its success as the leading supplier
of liquid cooling solutions for high-end computing,
shipping 1.1 million sealed loop liquid cooling units in
2018, representing growth of 10% from 2017.
/ Asetek announced customer wins utilizing Asetek’s
latest Generation 6 liquid cooling solutions:
ASUS, a premium brand for gaming systems, expand-
ed its Republic of Gamers (ROG) ecosystem with the
new ASUS ROG all-in-one coolers, Ryujin and Ryuo.
Asetek’s major DIY partner, Corsair, launched the
new Hydro Series H100i PRO liquid cooler, joining
the H150i PRO and H115i PRO coolers.
/ Data center sales to Fujitsu Technology Solutions
GmbH (“Fujitsu”) totaled $1.9 million, including ship-
ments for multiple HPC projects around the globe.
/ Asetek provided liquid cooling to Quanta Computer,
a new data center OEM, for an HPC cluster at the
National Center for High-Performance Computing in
Hsinchu, Taiwan.
ASETEK’S BUSINESS
Asetek is a global leader in liquid cooling solutions for
computer hardware enthusiasts, gamers, servers and data
centers. Asetek’s products enable increased performance
and provide lower acoustic noise, power savings and
improved efficiency when compared with air cooling.
The Company’s server products offer direct-to-chip
liquid cooling solutions to OEM providers for delivery of
cost effective, high performance data center solutions.
Asetek’s Gaming and Enthusiast products are all-in-one
coolers that provide reliable, maintenance-free liquid
cooling to gaming and high-performance PC customers.
With over six million liquid cooling units deployed,
Asetek’s patented technology is being adopted by a
growing portfolio of OEMs and channel partners. Foun-
ded in 2000, Asetek is headquartered in Demark and has
operations in California, Texas, China and Taiwan.
MANAGEMENT REPORT
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BUSINESS MODEL
Asetek’s business model begins with its research and
development team based in Aalborg, Denmark, which
manages collaboration with the Company’s global
customer base to define requirements and develop
cutting edge technology. The Aalborg team works with
the R&D team in Xiamen, China to identify the optimal
sources for the necessary components to fulfill customer
requirements.
The sales and marketing team, based principally in
USA, oversees the customer relationships to facilitate
communication and development, ensuring the de-
veloped product meets or exceeds customer demands.
Sales and marketing teams based in Europe and Asia
lead or assist efforts with the customers based outside
of USA.
The flow of physical product generally commences in
Asia. Asetek’s manufacturing and logistics team in Xiamen,
China select components and suppliers for the finished
product to be assembled by the Company’s principal
contract manufacturer based in Xiamen. Finished products
are delivered directly to customer hubs in China, with smaller
quantities shipped to Europe and USA. Lower volume,
highly complex products and components are manufac-
tured in Asetek facilities in Aalborg.
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FINANCIAL POSITION AND OPERATING RESULTS FOR 2018
PROFIT AND LOSS
Total revenue for 2018 was $67.3 million, representing an
increase of 16% from 2017 ($58.2 million). Sealed loop
cooling unit shipments for 2018 totaled 1.1 million, a 10%
increase over 2017 (1.0 million). Average Selling Prices
(ASP) for the year 2018 increased to $56.34 from $52.18 in
2017, principally resulting from shipment of new high-end
Gaming and Enthusiast products.
Gross margin increased to 38.9% in 2018 from 36.0% in
2016. The increase reflects higher ASPs which more than
offset increased manufacturing costs and the effects of
unfavorable currency exchange rates in comparison to
2017.
In 2018, total operating expense was $21.8 million, a 19%
increase from 2017 ($18.2 million), reflecting several
factors. Fiscal 2017 operating expense included an offset
of $1.0 million for settlements awarded to Asetek in patent
infringement lawsuits. The average exchange rate of USD
to DKK during 2018 was 3.5% lower than the average rate
in 2017. Approximately 71% of the Company’s operating
expense in 2018 was denominated in DKK, and therefore
the weakened U.S. dollar contributed to the increased
operating expense in 2018. Legal cost incurred associated
with defense of existing IP and securing new IP was $2.1
million in 2018 ($1.8 million). Depreciation and amor-
tization expense in 2018 increased by $1.3 million com-
pared with 2017. In recent periods, the Company has
added personnel resulting in higher compensation costs
in 2018. The above effects were partly offset by reduced
share based compensation cost of $1.3 million in 2018
($1.6 million).
Adjusted EBITDA was $9.4 million in 2018, compared with
$6.8 million in 2017. Adjusted EBITDA in 2018 represents
operating income of $4.4 million, plus depreciation of $3.7
million, plus share based compensation of $1.3 million.
Foreign currency transactions in 2018 resulted in a $0.3
million gain ($1.2 million loss in 2017).
In 2018, income tax expense totaled $1.2 million ($3.0
million benefit in 2017).
Asetek earned $3.5 million total comprehensive income
for 2018, compared with total comprehensive income
of $5.7 million in 2017. Comprehensive income included
a negative $0.2 million translation adjustment in 2018
(positive $1.3 million in 2017).
BALANCE SHEET
Asetek’s total assets at the end of 2018 were $51.4 million,
compared with $49.2 million at the end of 2017. The
change resulted principally from revenue growth which
drove operating income and growth of current assets.
Cash and cash equivalents at December 31, 2018 was
$18.6 million ($18.4 million in 2017).
Total liabilities decreased by $3.3 million in 2018, princi-
pally due to a reduction in trade payables associated with
the timing of inventory receipts and vendor payments.
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $3.8
million in 2018 ($6.1 million provided in 2017). The cash
flow was mainly attributed to operating income from the
increase in revenue. The decrease in operating cash flow
compared with 2017 was principally due to the increase
in receivables and the pay down of short-term liabilities
in 2018.
Cash used by investing activities was $3.7 million, related
principally to additions in capitalized development, manu-
facturing equipment and software. The figure compares
with $4.3 million used in 2017.
Cash provided by financing activities was $0.5 million,
principally from the issuance of common shares upon the
exercise of options. This compared with $2.1 million used
by financing activities in 2017. Cash used in 2017 included
the payment of a dividend of NOK1.00 per share.
Net change in cash and cash equivalents was positive
$0.2 million in 2018, compared with positive $0.8 million
in the same period last year.
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KEY RATIO: FORMULA USED FOR KEY RATIO CALCULATIONS
Average selling price per Gaming and Enthusiast unit ($) Total Gaming and Enthusiast units sold / Gaming and Enthusiast revenue
Revenue per employee ($000's) Revenue / Employees
Days sales outstanding Trade receivables / (Revenue / 365 days)
Inventory turns per year Cost of goods sold / (beginning inventory + ending inventory) / 2)
Price-earnings ratio, end of year Share price / NOK to USD exchange rate / Earnings per share, diluted
LIQUIDITY AND FINANCING
As of December 31, 2018, the Company has working
capital of $25.3 million and non-current liabilities of $0.6
million. Since 2016, the Company has generated positive
cash flows and net earnings. Prior to 2013, as a privately
held company, Asetek financed operations principally
through the issuance of convertible preferred shares. In
March 2013, through its initial public offering of common
shares on the Oslo Stock Exchange, the Company raised
$21.4 million. In March and April 2015, the Company
raised $12.2 million through the private and public issu-
ance of shares.
While there is no assurance that the Company will gen-
erate sufficient revenue or operating profits in the future,
Asetek’s management estimate that the Company’s
capital resources are sufficient to fund operating activities
in the foreseeable future, based on financial forecasts. To
the extent necessary to fund expansion or other liquidity
needs, management will consider offerings of debt,
equity, or a combination thereof, depending on the cost
of capital and the status of financial markets at that time.
FISCAL YEAR 2018 2017 2016 2015 2014
FINANCIAL HIGHLIGHTS: ($000’S)
Revenue 67,314 58,194 50,921 35,982 20,847
Gross profit 26,172 20,969 19,750 12,412 8,710
Gross margin % 38.9% 36.0% 38.8% 34.5% 41.8%
EBITDA (unaudited) 8,109 5,187 7,119 67 (7,739)
Operating income (loss) 4,419 2,757 4,669 (2,323) (9,510)
Finance income (expenses) 451 (1,258) 322 238 (385)
Income (loss) before tax 4,870 1,499 4,991 (2,085) (9,895)
Income tax benefit (expense) (1,198) 2,976 4,646 438 1,138
Net income (loss) 3,672 4,475 9,637 (1,647) (8,757)
Acquisition of property and equipment 2,048 2,742 1,222 958 172
Sealed loop units shipped (000’s) (unaudited) 1,119 1,020 949 727 425
YEAR-END VALUES ($000’S):
Total assets 51,398 49,176 41,164 27,748 12,814
Total equity 38,958 33,394 28,290 18,646 7,422
Total liabilities 12,440 15,782 12,874 9,102 5,392
Employees 95 93 79 71 68
PER SHARE INFORMATION:
Earnings per share, diluted (USD) 0.14 0.17 0.38 (0.07) (0.62)
Share price, end of year (NOK) 40.60 105.00 53.50 18.00 19.00
Price-earnings ratio, end of year 34 75 16 - -
KEY RATIOS:
Average selling price per Gaming and Enthusiast unit ($) 56.3 52.2 48.2 47.0 45.5
Revenue per employee ($000's) 709 626 645 507 307
Days sales outstanding 79 80 93 85 52
Inventory turns per year 15.9 21.4 21.2 13.2 11.2
HISTORICAL FINANCIAL REVIEW
MANAGEMENT REPORT
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EXPECTATIONS FOR 2019
GAMING AND ENTHUSIAST:
In recent years, the growing popularity of PC gaming and
eSports has fueled the growth in Asetek’s Gaming and
Enthusiast product segments. To meet the demands of
competitive gamers, the powerful machines in use today
require advanced cooling for both central processing units
(CPUs) and graphics processing units (GPUs). Asetek’s
liquid cooling solutions are well positioned to fulfill these
evolving needs of both CPUs and GPUs. The Company
will continue to develop existing and new products to
meet end-user and OEM customer demand and to add
new OEM customers within the Gaming and Enthusiast
business segment. At the same time, while gaming and
esports are flourishing, the current visibility into the overall
PC industry outlook is reduced by uncertainties related to
trade relations between U.S. and China, the impact from the
Brexit process, and the economic development across
other markets. Factoring in macroeconomic, market
segment and Asetek-specific factors, the Company expects
revenue growth in 2019 to be tempered compared with
recent years strong growth. The resource consumption, as
expressed in overhead expenses, is expected to increase
in 2019 compared to 2018.
DATA CENTER:
Asetek’s liquid cooling technology offers a strong value
proposition to high-performance computing (HPC) data
centers with increased performance, higher density and
lower cooling costs. Asetek’s strategy in this market is to
increase end-user adoption within existing OEM custom-
ers, and to add new OEM customers. The Company plans
to achieve this by continuing to develop and maintain its
market-leading technology and leverage the successful
performance achieved at its installed base of universities
and government entities. Through partnerships with data
center OEMs, Asetek anticipates continued growth of
end-user adoption with deliveries to new HPC installations
and shipments of less complex products. However, data
center market adoption of liquid cooling solutions takes
time and is lagging Company expectations despite its
strong value proposition. The Company has decided to
discontinue segment revenue guidance until the data
center business more clearly develops into a meaningful
business. Data center investments will also be scaled
down pending such a change. There is an apparent need
for public standards to trigger wider data center adoption
of liquid cooling. The Company will participate in targeted
campaigns to influence politicians and support wider
understanding of the significant circular economy benefits
enabled by liquid cooling. Segment revenue and operating
results are expected to fluctuate as partnerships with OEMs
are developed.
CONSOLIDATED RESULTS:
While the Gaming and Enthusiast results were in line with
forecasts, the consolidated financial results for 2018 did
not fully meet Management’s expectations. Management
expects to generate positive income on a consolidated basis
while the Company continues to focus on development of
new product releases in the Gaming and Enthusiast busi-
ness segment and design wins to gain traction with OEM’s
in the Data center business segment. Overall, and taking
the weighted revenue composition between the Gaming
and Enthusiast and the Data center segments into conside-
ration, the Company expects revenue growth of 0% to
10% for 2019, with minimal growth in spending. As such,
management expects that the Company will report income
before tax for 2019 on level with the results for 2018.
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RISK EXPOSURE AND MANAGEMENT
Asetek’s potential to realize the Company’s strategic
and operational objectives are subject to a number of
commercial and financial risks. Asetek is continuously
working on identifying risks that can negatively impact
the Company’s future growth, activities, financial position
and results as well as CSR-related risks.
Asetek conducts its business with significant focus on
continuous risk monitoring and management. The overall
goal of risk management is to ensure that the Company
is run with a level of risk, which is in a sensible ratio to the
activity level, the nature of the business, and the Compa-
ny’s expected earnings and equity. To the largest extent
possible, Asetek tries to accommodate and limit the risks
which the Company can affect through its own actions.
Insurance. It is the Company’s policy to mitigate signif-
icant risk areas with commercially available insurance
products. This currently includes insurance for product
liability, operating material and inventory as well as com-
pulsory coverage, which varies from country to country.
Management assessments indicate that the necessary
and relevant precautions have been taken to thoroughly
cover insurance issues. Asetek’s insurance policies and
overall coverage approach are reviewed at least annually.
Below, some of the risk factors management considers as
being of special importance to the Group are described in
no specific order.
CSR-related risks. Please see subsequent section
“Corporate Social Responsibility (CSR)” for discussion
of identified risks and remedies.
Customer concentration. In 2018, two customers ac-
counted for 39% and 21% of total revenue. In the event of
a decline or loss of these significant customers, replace-
ment of the revenue streams would be difficult for Asetek
to achieve in the short term.
Competition. The markets in which the Company
operates are competitive, the technological develop-
ment is rapid, and the Company may in the future also be
exposed to increased competition from current market
players or new entrants.
Credit risk. Credit risk is the risk of a counterpart neglecting
to fulfill its contractual obligations and in so doing im-
posing a loss on Asetek. The Group’s credit risk originates
mainly from receivables from the sale of products as well
as deposits in financial institutions. Receivables from
the sale of products are split between many customers
and geographic areas. Two customers represented 32%
and 23% of trade receivables at December 31, 2018. A
systematic credit evaluation of all customers is conduct-
ed, and the rating forms the basis for the payment terms
offered to the individual customer. Credit risk is monitored
centrally.
Intellectual property defense. Asetek has filed and
defended lawsuits against competitors for patent
infringement. While some of the cases have been settled
or dismissed, some may continue, and new cases may be
initiated. Such cases may proceed for an extended period
and could potentially lead to an unfavorable outcome to
Asetek. Asetek has historically incurred significant legal
costs associated with litigation and may continue to do
so in the future to the extent management believes it is
necessary to protect intellectual property.
Manufacturing supply. Asetek relies upon suppliers and
partners to supply products and services at competitive
prices. Asetek’s Gaming and Enthusiast products have
been historically assembled by a single contract manufac-
turer which may be difficult to substitute in the short term
if the need should arise.
U.S. Import Tariffs. In the second half of 2018, the U.S.
began imposing new tariffs on imports of goods manu-
factured in China, which include Asetek products. The
impact from these tariffs is unclear, as the industry is pro-
ceeding in efforts to mitigate their effects. The Company
is currently working to minimize the impact of the new
tariffs on Asetek and its customers.
Foreign exchange rates. Substantially all of Asetek’s
revenue is billed in USD. However, many customers resell
Asetek products to end users in countries where USD is
not the transactional currency. As a result, there is a risk
that fluctuations in currency will affect the cost of product
to the end user and negatively impact market demand for
Asetek products. Asetek estimates that about one third
of its sold products ultimately are delivered in Europe or
Japan, which are the two geographical areas which could
have the largest potential impact due to USD fluctuation.
Asetek believes that other factors in the end users’ buying
decision play a larger role than price fluctuation on the
liquid cooling component. During 2018, the USD appreci-
ated against both the DKK and EUR by 5% and weakened
against the Japanese yen by 2%.
Asetek’s raw materials are predominantly purchased with
USD, from vendors whose underlying currency is CNY.
The USD appreciated by approximately 5% versus the
CNY during 2018. While Asetek recognizes that USD
appreciation can result in negative sales price pressure
for its suppliers, the Company has not seen significant
reaction from its markets. In addition, Asetek believes that
competing products are prone to the same exchange rate
scenarios as Asetek.
A significant portion of Asetek's overhead costs are
incurred in DKK. As a result, fluctuations in USD vs. DKK
will continue to have an influence on results of operations
and financial position. The Group has not entered into any
forward exchange instruments.
Research and development, product innovation,
market development. The Company’s future success,
including the opportunities to ensure growth, depends
on the ability to continue developing new solutions and
products adapted to the latest technology and the clients’
needs as well as improving existing solutions and market
position. As such, the Company develops new releases on
a regular basis, with emphasis on higher performance, im-
proved efficiency and noise-reduction. Providing new and
innovative applications for Asetek’s cooling technology
is also a focus, as evidenced by the cooling products re-
leased during 2018. Asetek has in recent years increased
MANAGEMENT REPORT
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its focus and investments on building the market for data
center liquid cooling products.
Projects and contracts. It is important to Asetek’s overall
success that development projects are executed at
high quality and at predetermined timeframes and cost
prices. Risks are attached to the sale, analysis and design,
development and initial manufacturing phases. Asetek has
carefully defined the individual phases and the activities
contained therein, with a view to active risk management
and efficient implementation. Through project reviews
and ongoing analyses before, during, and after initiation,
Asetek works to ensure that agreements are adhered to
and that revenue and margins are as planned.
Taxation. The tax situation of the Company is complex.
In connection with its initial public offering in 2013, Asetek
moved its Parent company from the U.S. to Denmark. As
a result, both U.S. and Danish tax authorities may claim
that the Company is tax liable to both countries. The tax
treaties in place between the two countries may not fully
resolve this potential conflict, which has increased in
importance as the Company increases profitability. The
Company is currently in the preparatory phase of working
with the tax authorities of Denmark and U.S. to possibly
resolve this issue.
Employee relations. Asetek is a knowledge-intensive
Company and in order to continuously offer optimal
solutions, develop innovative products, and ensure
satisfactory financial results, it is necessary to attract and
develop the right employees. Asetek has the goal of being
an attractive workplace and achieves this through various
programs including an option incentive program, attrac-
tive working conditions, and corporate social responsibility
(CSR) policies described in the following section of this
report. The Company seeks to support a Company culture
founded on individual responsibility and performance as
well as team accomplishment.
CORPORATE SOCIAL RESPONSIBILITY (CSR) CSR Policy. Asetek seeks to be a good corporate citizen
in everything that it does, and therefore has combined its
operating principles into one framework policy of Corpo-
rate Social Responsibility (CSR). This policy encompasses
all areas of Asetek’s operations and its aim is to provide a
set of guidelines, standards and practical guidance for the
Company’s employees in conducting business globally.
Important aspects of the CSR policy include the following,
which are referenced in subsequent paragraphs in this
section:
// Code of conduct
// Anti-corruption and bribery
// Internal environment, knowledge
resources and employee relations
// Equal opportunities
// External environment
// Adherence to human rights principles
CSR Policy and risk management. Maintenance of, and
adherence to the CSR policy is important in mitigating
several aforementioned business risks including manu-
facturing supply, research and development, product in-
novation, project & contract management, and employee
relations (refer to the prior section titled “Risk exposure
and management”).
The Company’s CSR policy can be found at: https://www.
asetek.com/media/2221/corporate-social-responsibili-
ty-policy.pdf
Code of conduct. Asetek’s Code of Business Conduct
and Ethics is the general ethical policy for business
conduct to promote global ethical business practices and
protect Asetek against corruption and other unethical
business behavior. Per the policy, Asetek employees,
officers, directors and independent contractors are ex-
pected to perform their duties ethically, honestly and with
integrity; and communicate in good faith any concerns
regarding improper business practices or conflicts of
interests, if observed. The business conduct guidelines
and policy can be found at http://asetek.com/investor-
relations/corporate-governance/ethical-guidelines.aspx
Anti-corruption and bribery. As documented in its
CSR Policy, Asetek will not tolerate corruption, money
laundering, bribery or other illegal or unethical business
activity. The Company’s performance and competitive-
ness are strengthened solely through lawful conduct. The
Group's anti-corruption position is clearly communicated
to all employees at at least annually, and thus also during
2018. Furthermore, Asetek has implemented an Ethics
Website operated by a third-party company. Via the
website, all stakeholders can keep themselves informed
about Asetek’s policies as well as report any concern to
the Company’s leadership. No reports related to alleged
infringing activities have been received during 2018.
Internal environment and knowledge resources. Asetek
recognizes that its employees are its key assets and it is
committed to maintaining a stimulating working envi-
ronment that offers opportunity for both personal and
professional development.
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The Company’s CSR Policy on Employment reinforc-
es the framework established by the Organization for
Economic Cooperation and Development (OECD),
encouraging openness, sustainability and respect for
employee rights. The Company maintains a team-orient-
ed culture where all employees have the opportunity to
contribute significantly to the success of the Company.
This is also necessary to continue to attract and retain
highly qualified employees within the computer industry.
Asetek welcomes applications for employment from all
sectors of the community and strives to promote equal
opportunity of employment to all. The Group maintains a
positive working environment and sick leave is not signifi-
cant. During 2018, total employee attrition was 18%, which
is comparable with the global average of a recent Radford
report on turnover rates at technology companies. Of
Asetek’s employees at December 31, 2018, 29% have
been continuously employed by the Company for five
years or longer. No working accidents or injuries occurred
in 2018. During 2018, the work on internal environment
continued to focus on enhancing the collaboration
between Asetek’s various global locations and cultures.
The work resulted in improved collaboration regarding
quality assurance of products. To enable the Company to
support initiatives aimed at improving working conditions,
the Company monitors sick leave by job type.
Equal opportunities. The Board of Directors set a goal
for Asetek to have at least 15% female representation
at board and management level by 2018. At the end of
2018, the Board of Directors consisted of 100% male
members. Therefore, the Company did not meet this goal
in 2018. During 2018 the Chairman of the Board retired,
and one other Board member did not make himself
available for re-election. On January 14, 2019, the Board
elected Ms. Maria Hjorth to the Board. After Ms. Hjorth’s
election in 2019, the Board consists of 75% male and 25%
female members. When evaluating new potential board
members, the Board of Directors encourages female
candidates, while at the same time continues to search for
relevant experience specific to Asetek. At other manage-
ment levels, there is 14% female representation at the end
of 2018, which is a reduction from the year before (18%).
During 2018 the Company has continued to actively
encourage women to apply for open positions as well
as it has continued its communication with educational
institutions which trains both male and female candidates.
The work to increase the female representation continues
into 2019.
External environment. Asetek Group operations’ effect
on the environment is minimal and is typical for a supplier
of computer components. As such, the Company does
not have a policy on environment and climate impact.
The principal source of strain on the environment from
the business is related to shipment of inventory, which is
conducted in accordance with normal routine commerce.
Asetek’s principal manufacturing operations are out-
sourced to a commercial manufacturer in China, which
is continuously monitored on various factors relating to
the environment and other social responsibilities. The
Company monitors the consumption of select resources
at its manufacturing partner, enabling an ongoing discus-
sion about how to design manufacturing processes that
minimize the use of environmental resources.
Internally, the Company is committed to achieving
continuous improvement in environmental performance.
Asetek takes great care to ensure that the materials and
liquids used are not harmful to the environment. In 2018,
the Company increased its focus on minimizing waste
materials, including the improvement of sort, reuse and
recycle procedures to reduce the impact of waste on the
external environment.
Adherence to Human Rights Principles. Asetek supports
the fundamental principles of EICC (Electronic Industry
Citizenship Coalition) on human rights, employees’ rights,
child labor, health and safety, environment and anticor-
ruption. The Company’s CSR Policy includes standards
of conduct that include the fair and honest treatment of
employees, respecting human rights and the interests of
employees, customers and third parties.
The Company requires that suppliers respect and conform
to the same human rights principles. Asetek’s CSR Policy
specifies its commitment to obtaining and retaining goods
and services while at the same time ensuring they are from
sources which have not jeopardized human rights, safety
or the environment. Asetek periodically validates via its
supplier review and evaluation process that its suppliers
conform to the principles. During 2018, a questionaire was
sent to suppliers as part of the of the annual supplier audit.
The principles can be found at http://www.eicc.info/eicc_
code.shtml The Company’s work in 2018 primarily focused
on working with and monitoring new suppliers.
Transparency and credibility. Asetek is committed to
show complete openness towards shareholders, custom-
ers, employees, suppliers and other stakeholders.
MANAGEMENT REPORT
Resource Consumption 2018 2017
Electricity consumption per Gaming & Enthusiast unit 0.28 kWh 0.30 kWh
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THE WORK OF THE BOARD OF DIRECTORSAsetek’s management model and organization are adapt-
ed continuously to ensure the Company is equipped to
manage all obligations to shareholders, customers, em-
ployees, authorities and other stakeholders to the utmost.
In this process, Asetek uses the corporate governance
recommendations from NASDAQ Copenhagen as an im-
portant source of inspiration. The recommendations can
be found at http://www.nasdaqomx.com/listing/europe/
surveillance/copenhagen/corporategovernance
The Board of Directors is fundamentally in full
agreement with Danish Committee on Corporate
Governance recommendations for good company
governance. Asetek endeavors to follow the relevant
recommendations for the Company, which support
the business and ensure value for the Company’s
stakeholders. The statutory report on Corporate
Governance, cf. section 107b of the Danish Financial
Statements Act, is available on the Company’s website:
https://www.asetek.com/media/2948/scgs2018.pdf
Dialogue between the Company and its shareholders.
The communication between Asetek and shareholders
primarily takes place at the Company’s Annual General
Meeting and via company announcements. Asetek share-
holders are encouraged to subscribe to the e-mail service
to receive company announcements, interim manage-
ment statements, interim reports and annual reports as
well as other news via e-mail.
The general meeting. The General Meeting has the final
authority over the Company. The Board of Directors em-
phasize that shareholders are given detailed information
and an adequate basis for the decisions to be made by the
General Meeting.
The General Meeting elects the Board of Directors, which
currently consists of four members. The board members
are elected for one year at a time with the option for
re-election.
Amendment of Articles of Association. Unless other-
wise required by the Danish Companies Act, resolutions
to amend the Articles of Association must be approved by
at least 2/3 of the votes cast as well as at least 2/3 of the
voting share capital represented at the General Meeting.
Board responsibilities. The Board of Directors’ main
tasks include participating in developing and adopting
the Company's strategy, performing the relevant control
functions and serving as an advisory body for the exec-
utive management. The Board reviews and adopts the
Company's plans and budgets. Items of major strategic
or financial importance for the Company are items pro-
cessed by the Board. The Board is responsible for hiring
the CEO and defining his or her work instructions as
well as setting of his or her compensation. The Board peri-
odically reviews the Company’s policies and procedures
to ensure that the Group is managed in accordance with
good corporate governance principles, upholding high
ethics.
Financial reporting. The Board of Directors receives
regular financial reports on the Company's business and
financial status.
Notification of meetings and discussion of items. The
Board schedules regular meetings each year. Ordinarily,
the Board meets eight to ten times a year, of which four
are quarterly update teleconferences. The meetings are
typically conducted at either the facility in Aalborg,
Denmark or in San Jose, California or via telephone.
Additional meetings may be convened on an ad hoc
basis. During 2018, the Board met seven times.
All Board members receive regular information about the
Company's operational and financial progress in advance
of the scheduled Board meetings.
The Board members also regularly receive operations re-
ports and participate in strategy reviews. The Company's
business plan, strategy and risks are regularly reviewed
and evaluated by the Board. The Board Members are
free to consult the Company's senior executives as
needed. Ordinarily, the Chairman of the Board proposes
the agenda for each Board meeting. Besides the Board
Members, Board meetings are attended by the Executive
Board. Other participants are summoned as needed. The
Board approves decisions of particular importance to the
Company including the strategies and strategic plans,
the approval of significant investments, and the approval
of business acquisitions and disposals.
Conflicts of interest. In a situation involving a member
of the Board personally, this member will exclude him or
herself from the discussions and voting on the issue.
Use of Committees. Currently, the Company has a
Nomination Committee, an Audit Committee and a
Compensation Committee.
// The Nomination Committee is elected directly by the
General Meeting. The Committee consists of three
members and must be independent from the Board of
Directors and the management, however, it is recom-
mended that the chairman of the Board of Directors
is a member. The tasks include proposing candidates
for the Board of Directors, propose remuneration for
the Board of Directors as well as perform the annual
assessment of the Board of Directors. Members: Ib
Sønderby (chairman), Scott Pagel and Jørgen Smidt.
The Committee met five times during 2018.
// The Audit Committee is elected among the members
of the Board of Directors and has responsibilities
related to financial reporting, the independent auditor,
internal reporting and risk management.
CORPORATE GOVERNANCE
Danish Recommendation for Corporate Governance 2018 2017
Complies with recommendations 42 40
Partially complies with recommendations 3 5
Does not comply with recommendations 2 7
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NEW DATA CENTER HYBRID DOES NOT REQUIRE PLUMBING
Our solution takes up half the rack space of
comparable solutions
Can a customer benefit from Asetek’s liquid cooling in his
datacenter or server rack if he does not have water flow to the
datacenter? Yes, soon he can, because in early 2019, Asetek
expects to launch a new product especially for customers
who want to utilize liquid cooling but have no plumbing in the
datacenter. These customers – both OEM’s and end users –
have up until now been confined to using air cooling.
”Our optimal datacenter solution in terms of energy savings
and reuse of waste heat continues to be our RackCDU, which
has an ROI in saved power expenses of less than one year.
But that solution requires water pipes throughout the da-
tacenter, which can be a significant extra investment for the
smaller and mid-sized enterprise”, explains Torben Schaltz,
Asetek engineer and program manager for the InRackLAAC
product line. LAAC is short for ”Liquid Assisted Air Cooling”.
If the customer does not find it feasible to invest in plumbing
infrastructure up front, the datacenter hybrid InRackLAAC
is a good alternative that combines some of the significant
benefits of the Asetek CPU- and datacenter solutions. Spe-
cifically, this new solution works because it circulates water in
closed loops between the servers and the Asetek units, from
which the heat is emitted by use of traditional air cooling.
This means that one can seamlessly install the required
number of Asetek units, cooling the ever-higher perfor-
mance and thus warmer processors in the servers with water.
The advantage of the new hybrid is that the InRackLAAC
enables the use of the newest processors without having to
change the datacenter infrastructure.
“Compared to the competitors' solutions, Asetek's water
cooling solution does not require as much water pressure
or as much space. Our solution takes up half the rack space
of comparable solutions, so there can be room for more
servers,” says Torben. "With the InRackLAAC solution, the
customer can get a feel for Asetek's liquid cooling solution
without the significant infrastructure investment. And then
determine, when the time is right, if he should go all the way
and arrange his next data center's infrastructure ideally with
access to water."
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The Committee consists of two shareholder-elected
Board members. The other Board members are entitled
to attend if they so desire. Members: Chris Christopher
and one open seat. The Committee met four times during
2018.
// The Compensation Committee has responsibilities
related to developing proposals for the applicable
remuneration policy and execution of the Management
Board. Members: Jim McDonnell and Jørgen Smidt.
The Committee met four times during 2018.
The Board’s self-evaluation. The Board's composition,
competencies, working methods and interaction are dis-
cussed on an ongoing basis and evaluated formally on an
annual basis. In this connection, the Board also evaluates
its efforts in terms of corporate governance.
The composition of the Board is considered appropriate
in terms of professional experience and relevant special
competences to perform the tasks of the Board of
Directors. The Board of Directors continuously assesses
whether the competencies and expertise of members
need to be updated. At least half of the members elected
by the General Meeting are independent persons, and
none of the Board members participates in the day-to-
day operation of the Company.
As of December 31, 2018, the Board had two open seats,
one of which was subsequently filled: On January 14, 2019,
in an Extraordinary General Meeting, the Board elected
Ms. Maria Hjorth to the Board of Directors. As part of Ms.
Hjorth’s role, she will serve on the audit committee.
A comprehensive list of other management positions held
by the Board members can be found in Note 24.
Risk management. Refer to the Risk Exposure and
Management section of the Management Report as well as
Note 3 of the consolidated financial statements.
THE BOARD’S AUTHORIZATION TO ISSUE SHARES
At the General Meeting held on August 13, 2013 the Board
was authorized to issue shares with a nominal value of up to
DKK 80,000 for the period until August 14, 2018 in connec-
tion with employee warrant programs.
At the Board of Directors meeting on April 23, 2014 warrants
permitting subscription of up to 118,210 shares of a nominal
value of DKK 0.10 and at an exercise price of NOK 40.10 per
share were issued. The exercise price was established as the
share price (“closing price”) for the Company’s share as of
the prior day. The warrants were issued to employees and
Board members.
At the Board of Directors meeting on August 12, 2014
warrants permitting subscription of up to 32,970 shares of a
nominal value of DKK 0.10 and at an exercise price of NOK
33.90 per share were issued. The exercise price was estab-
lished as the share price (“closing price”) for the Company’s
share as of the prior day. The warrants were issued to
employees and Board members.
At the General Meeting held on April 30, 2015, the Board
was authorized to issue new shares under the warrant
program up to a nominal value of DKK 200,000 through
April 30, 2020.
At the Board Meeting on August 11, 2015, warrants per-
mitting subscription of up to 700,000 shares of a nominal
value of DKK 0.10 and at an exercise price of NOK 10.50
per share were issued. The exercise price was established
as the share price (“closing price”) for the Company’s share
as of August 12, 2015. The warrants were issued to employ-
ees and Board members.
At the Board Meeting on April 29, 2016, warrants permit-
ting subscription of up to 600,000 shares of a nominal
value of DKK 0.10 and at an exercise price of NOK 19.50
per share were issued. The exercise price was established
as the share price (“closing price”) for the Company’s share
as of April 28, 2016. The warrants were issued to employees
and Board members.
At the Board Meeting on April 25, 2017, warrants permitting
subscription of up to 509,687 shares of a nominal value of
DKK 0.10 and at an exercise price of NOK 76.25 per share
were issued. The exercise price was established as the
share price (“closing price”) for the Company’s shares as of
April 25, 2017. The warrants were issued to employees and
Board members.
At the Board Meeting on July 7, 2017, warrants permitting
subscription of up to 106,999 shares of a nominal value of
DKK 0.10 and at an exercise price of NOK 113.00 per share
were issued. The exercise price was established as the
share price (“closing price”) for the Company’s shares as
of July 7, 2017. The warrants were issued to employees.
At the General Meeting held on April 25, 2018, the Board
was authorized to acquire the Company’s own shares.
At the Board Meeting on October 31, 2018, the Board
introduced an employee stock option program to replace
the warrant program previously in place. The program is
governed by the Company’s general guidelines for equity
incentive programs as adopted on August 14, 2013. Upon
adoption of the plan, options permitting purchase of up to
378,500 shares of a nominal value of DKK 0.10 and at an
exercise price of NOK 46.30 per share were issued. The
exercise price was established as the share price (“closing
price”) for the Company’s share as of October 31, 2018.
REMUNERATION OF THE BOARD OF DIRECTORS
Board members representing their Company’s ownership
interests are not compensated for their service, and the
significant travel time endured by all Board members is not
specifically compensated. Independent board members
received a combination of cash compensation and long
termed stock option-based incentives during 2017.
Beginning in 2018, the Board no longer receives warrants
or options as a component of remuneration. Please see
Note 24 for further details.
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REMUNERATION OF THE EXECUTIVE STAFF
The Remuneration Committee recommends to the
Board, and the Board sets, the terms of employment of
the members of the Management Board. Each year, the
Remuneration Committee undertakes a review of salary
and other remuneration to the CEO as well as for other
members of the Management Board.
A summary of the agreements between the Company
and its management board members pertaining to
termination can be found in Note 6.
The option program and the allocation of options to the
employees are decided upon by the Board of Directors.
AUDITORS
Asetek A/S first appointed its current auditors, Price-
WaterhouseCoopers (PwC) for the financial year 2013.
PwC has been reappointed annually by resolution of the
Annual General Meeting for a total consecutive period of
six years up to and including the financial year 2018.
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EXECUTIVE BOARD:
BOARD OF DIRECTORS:
André Sloth Eriksen Chief Executive Officer
Peter Dam Madsen Chief Financial Officer
Chris J. Christopher Jim McDonnell
Jørgen Smidt
The Executive Board and the Board of Directors have
today considered and adopted the Annual Report of
Asetek A/S for the financial year January 1 to December
31, 2018. The annual report is prepared in accordance with
International Financial Reporting Standards as adopted
by the EU and additional Danish disclosure requirements
for listed companies.
In our opinion, the Consolidated Financial Statements
and Parent company Financial Statements give a true and
fair view of the financial position at December 31, 2018
of the Group and the Parent company and of the results
of the Group and Parent company operations and cash
flows for 2018.
In our opinion, Management’s Report includes a true
and fair account of the development in the operations
and financial circumstances of the Group and the Parent
company as well as a description of the most significant
risks and elements of uncertainty facing the Group and
the Parent company.
We recommend that the Annual Report be adopted
at the Annual General Meeting.
Aalborg, Denmark
March 4, 2019
STATEMENT BY MANAGEMENT
Maria Hjorth
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ASETEK’S NEW ESPORTS ACADEMY AND GIVING BACK
TO THE COMMUNITY
We are aware of the branding value of creating
a serious elite training environment, such as
Counter-Strike, League of Legends, Simracing etc.
Asetek should be more directly on the mind of the gamer,
who often – without knowing it today – has a built-in
Asetek liquid cooling component in his or her gaming
computer. The road there – as Asetek management
knows – runs through eSport, which is receiving exploding
international attention. Specifically, in recent months
Asetek has been building an in-house eSports Academy,
which will be the base for local eSports athletes who want
to train in the best facilities. In addition, the academy will
be the focal point for several international tournaments.
“We are aware of the branding value of creating a serious
elite training environment, such as Counter-Strike,
League of Legends, Simracing etc. At the same time, we
would also like to remind the gamer community around
the world that Asetek is a company born out of computer
enthusiasts and gamers with an electronic pulse, as the
gamers themselves. In terms of marketing, we are reach-
ing back towards the gamer identity and will not be seen
only as a dusty supplier to the big PC manufacturers”, says
Asetek's technology evangelist Dennis Hampe, who has
marketing responsibility for the Academy project.
STATE-OF-THE-ART GAMING ENVIRONMENT
After recent extensive planning, a large and well-
equipped gamer room – the Academy – has been created
in Asetek's headquarters in Aalborg, with nearly a dozen
gaming stations, including 10 state-of the-art Alienware
Aurora R8 computers and 5 racing simulators from
Fanatec. In addition, state-of-the-art Philips Hue lighting
has been installed, along with top-quality green gaming
chairs and desks from Swedish Arozzi. There will be access
to the Academy around-the-clock with key fobs, and the
100 square-meters room will also be lounge-furnished
with sofas and a café, where one can relax with eSports
on the big screen TV. The gamers can also work on tactics
and physical training exercises and share experiences, for
example, regarding the best "overclocking" settings for
the eSports athletes and teams.
LOOKING FOR A HARD-WORKING TEAM
Asetek is also seeking a talented gaming team! Currently,
Dennis Hampe is looking for an established, talented
and elite team of 5 to 7 ambitious players residing near
Aalborg. In the search, Asetek hopes to find the right
combination of dedicated, team-oriented gamers who
over time and in the optimal framework, can develop
into a professional Asetek team that can eventually play
in the biggest, most attention-creating international
tournaments. “The important thing is that Asetek would
like to facilitate the framework but not be relied upon for
training and financial support. A well-managed group
of hard-working upcoming talents aged 15 to 30 would
be perfect. It would be intriguing if we can eventually
develop Asetek's own serious response to giants such as
Astralis, Team Liquid and Invictus Gaming”, continues
Dennis.
Of course, in addition to the elite team, Asetek's own
dedicated players among the employees would have
access to the academy as a motivational perk.
WORLDWIDE TOURNAMENT FOR THE
GAMING COMMUNITY
Asetek plans to create a gaming tournament where tal-
ented teams from around the world can sign up. Initially,
the idea is that the teams play online from home until the
winners in the various parts of the world are determined.
The prize for the winning teams in the different regions is
then an invitation for an all-expenses-paid trip to Aalborg
to play the final rounds at the Academy, against the other
regional winners.
"Resulting in new international gamer celebrities
and the ultimate WOW effect," as Dennis puts it.
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TO THE SHAREHOLDERS OF ASETEK A/S
OUR OPINION
In our opinion, the Consolidated Financial Statements
and the Parent Company Financial Statements give a true
and fair view of the Group’s and the Parent Company’s
financial position at 31 December 2018 and of the results
of the Group’s and the Parent Company’s operations and
cash flows for the financial year 1 January to 31 December
2018 in accordance with International Financial Reporting
Standards as adopted by the EU and further requirements
in the Danish Financial Statements Act.
Our opinion is consistent with our Auditor’s Long-form
Report to the Audit Committee and the Board of Directors.
What we have audited. The Consolidated Financial State-
ments and Parent Company Financial Statements of Asetek
A/S for the financial year 1 January to 31 December 2018
comprise statement of comprehensive income, balance
sheet, statement of changes in equity, cash flow statement
and notes, including summary of significant accounting
policies for the Group as well as for the Parent Company.
Collectively referred to as the “Financial Statements”.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (ISAs) and the additional require-
ments applicable in Denmark. Our responsibilities under
those standards and requirements are further described in
the Auditor’s responsibilities for the audit of the Financial
Statements section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence. We are independent of the Group in ac-
cordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants
(IESBA Code) and the additional requirements applicable
in Denmark. We have also fulfilled our other ethical respon-
sibilities in accordance with the IESBA Code.
To the best of our knowledge and belief, prohibited non-au-
dit services referred to in Article 5(1) of Regulation (EU) No
537/2014 were not provided.
Appointment. We were first appointed auditors of Asetek
A/S on 22 January 2013 for the financial year 2013. We
have been reappointed annually by shareholder resolution
for a total period of uninterrupted engagement of 6 years
including the financial year 2018.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the Fi-
nancial Statements for 2018. These matters were addressed
in the context of our audit of the Financial Statements as a
whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Capitalization of development costs
Asetek A/S continuously develops new solutions and prod-
ucts adapted to the latest technology and the clients’ needs
as well as improving existing solutions and market position.
As described in note 14 USD 2,414k of internal development
costs have been capitalized within Intangible Assets.
We focused on this area due to the size of the internal costs
capitalized, and the fact that there is judgement involved
in assessing whether the criteria set out in the accounting
standards for capitalization of such costs have been met,
particularly:
// The technical feasibility of the project;
// The likelihood of the project delivering sufficient future
economic benefits; and
// That costs capitalized are relevant to the project and in
conjunction with IAS 38
In the light of the development of new solutions and prod-
ucts adapted to the latest technology, we also focused on
whether the carrying value ongoing and completed projects
was impaired.
How our audit addressed the key audit matter
We obtained a breakdown, by value, of all individual devel-
opment projects capitalized in the period and reconciled
this to the amounts recorded in the general ledger.
We tested the largest capitalized development projects in
2018 together with a sample of smaller projects from the
remaining population, as follows:
// We obtained business cases from management including
description of the development project, feasibility
analysis, budgeted costs and budgeted revenue.
This also included descriptions on how the specific
requirements of the relevant accounting standards and
other guidance, most notably IAS 38 were met.
// We discussed the assumptions for budgets and
compared historical budgets with realized amounts to
challenge management’s explanations.
// We obtained explanations from management of why
the projects are impaired or not. We challenged both
management and the project manager as to whether the
development of new solutions and products superseded
or impaired any of the existing assets on the balance
sheet. We also applied our own understanding of both
new and existing projects that is no longer in use or its life
was shortened by any development activity.
To determine whether costs were directly attributable to
projects, we obtained listings of hours worked on individual
projects and compared a sample of the individual hours
recorded with the capitalized hours. We also checked the
hours charged equated to the value of costs capitalized,
by applying the approved salary rates per employee to the
timesheet hours. We reconciled specifications of the basis
used for capitalized overheads and discussed the appropri-
ateness of included costs in respect of relevant accounting
rules and guidance.
Furthermore, we compared a sample of the direct costs
capitalized with external vendor invoices.
INDEPENDENT AUDITOR’S REPORT
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Valuation of deferred tax assets
As explained in note 11, Asetek has recognized USD 7,458k
as deferred tax assets. Tax losses from previous years
amounts to USD 8,673k of the total recognized deferred tax
asset. The tax losses can be carried forward against future
taxable income. The tax losses relates to losses realized in
Denmark and the U.S.
We focused on this area due to the size of the deferred tax
asset and the size of the total tax losses. Furthermore, there
is judgement involved in assessing whether the criteria set
out in the accounting standards (IAS 12) for recognising de-
ferred tax assets have been met, particularly the probability
that future taxable profit will be available, against which the
unused tax losses can be utilised.
Reference is made to note 11 in the Consolidated Financial
Statements.
How our audit addressed the key audit matter
We assessed the management’s valuation of the deferred
tax assets and reconciled this to the amounts recorded in
the financial statements.
We challenged and applied professional scepticism to the
judgments and estimates made by management in relation
to the deferred tax assets through the following audit
procedures:
// We received the Group’s budgets for the period 2019-
2023. We evaluated and challenged the assumptions
made by management by comparing budgets to realized
figures and realized growth for 2018.
// We compared the budgets with the deferred tax asset
recognised and challenged management on their plan
for utilising the tax losses.
// We utilised our tax specialists in order to ensure
compliance to tax rules in respect of determining the
value of the deferred tax asset.
STATEMENT ON MANAGEMENT’S REVIEW
Management is responsible for Management’s Review.
Our opinion on the Financial Statements does not cover
Management’s Review, and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read Management’s Review and, in doing
so, consider whether Management’s Review is materially
inconsistent with the Financial Statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated.
Moreover, we considered whether Management’s Review
includes the disclosures required by the Danish Financial
Statements Act.
Based on the work we have performed, in our view, Man-
agement’s Review is in accordance with the Consolidated
Financial Statements and the Parent Company Financial
Statements and has been prepared in accordance with the
requirements of the Danish Financial Statements Act. We
did not identify any material misstatement in Management’s
Review.
MANAGEMENT’S RESPONSIBILITIES FOR THE
FINANCIAL STATEMENTS
Management is responsible for the preparation of consol-
idated financial statements and parent company financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by
the EU and further requirements in the Danish Financial
Statements Act, and for such internal control as Manage-
ment determines is necessary to enable the preparation of fi-
nancial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the Financial Statements, Management is
responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using
the going concern basis of accounting unless Management
either intends to liquidate the Group or the Parent Company
or to cease operations, or has no realistic alternative but to
do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF
THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the Financial Statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasona-
ble assurance is a high level of assurance, but is not a guaran-
tee that an audit conducted in accordance with ISAs and the
additional requirements applicable in Denmark will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these Financial Statements.
As part of an audit in accordance with ISAs and the addi-
tional requirements applicable in Denmark, we exercise pro-
fessional judgement and maintain professional scepticism
throughout the audit. We also:
// Identify and assess the risks of material misstatement of
the Financial Statements, whether due to fraud or
error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
// Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s and the Parent Company’s internal control.
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// Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by Management.
// Conclude on the appropriateness of Management’s use
of the going concern basis of accounting and based on
the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s and the Parent
Company’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the
related disclosures in the Financial Statements or, if such
disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events
or conditions may cause the Group or the Parent
Company to cease to continue as a going concern.
// Evaluate the overall presentation, structure and content
of the Financial Statements, including the disclosures,
and whether the Financial Statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
// Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the Group to express an opinion on the
Consolidated Financial Statements. We are responsible
for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance
regarding, among other matters, the planned scope and tim-
ing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communi-
cate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the Financial Statements of the
current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication.
Aarhus, 4 March 2019
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 3377 1231
AUDITOR’S REPORT
Henrik Trangeled Kristensen State Authorised Public Accountant
mne23333
Henrik Berring RasmussenState Authorised Public Accountant
mne34157
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(USD 000’s) Note 2018 2017
Revenue 4 67,314 58,194
Cost of sales 8 (41,142) (37,225)
GROSS PROFIT 26,172 20,969
Research and development (4,764) (4,220)
Selling, general and administrative (16,989) (14,905)
Other income - 913
TOTAL OPERATING EXPENSES 8 (21,753) (18,212)
OPERATING INCOME 4,419 2,757
Foreign exchange (loss) gain 9 342 (1,239)
Finance income 9 205 84
Finance costs 9 (96) (103)
TOTAL FINANCIAL INCOME (EXPENSES) 451 (1,258)
INCOME BEFORE TAX 4,870 1,499
Income tax (expense) benefit 10, 11 (1,198) 2,976
INCOME FOR THE YEAR 3,672 4,475
Other comprehensive income items that may be reclassified to profit or loss in subsequent periods:
Foreign currency translation adjustments (169) 1,253
TOTAL COMPREHENSIVE INCOME 3,503 5,728
INCOME PER SHARE: (IN USD)
Basic 12 0.14 0.18
Diluted 12 0.14 0.17
All operations are continuing
The Notes on the following pages are an integral part of these consolidated financial statements.
ASETEK A/S - CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the years ended December 31, 2018 and 2017
PROFIT & LOSS
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(USD 000’s) Note 2018 2017
ASSETS
NON-CURRENT ASSETS
Intangible assets 14 2,414 2,754
Property and equipment 15 4,103 3,856
Deferred income tax assets 11 7,458 7,778
Other assets 309 794
TOTAL NON-CURRENT ASSETS 14,284 15,182
CURRENT ASSETS
Inventory 17 2,862 2,316
Trade receivables and other 16 15,625 13,280
Cash and cash equivalents 18,627 18,398
TOTAL CURRENT ASSETS 37,114 33,994
TOTAL ASSETS 51,398 49,176
EQUITY AND LIABILITIES
EQUITY
Share capital 18 422 419
Retained earnings 37,704 31,976
Translation and other reserves 832 999
TOTAL EQUITY 38,958 33,394
NON-CURRENT LIABILITIES
Long-term debt 19 641 816
TOTAL NON-CURRENT LIABILITIES 641 816
CURRENT LIABILITIES
Short-term debt 19 980 1,051
Accrued liabilities 2,185 2,432
Accrued compensation and employee benefits 1,512 1,335
Trade payables 7,122 10,148
TOTAL CURRENT LIABILITIES 11,799 14,966
TOTAL LIABILITIES 12,440 15,782
TOTAL EQUITY AND LIABILITIES 51,398 49,176
The Notes on the following pages are an integral part of these consolidated financial statements.
ASETEK A/S - CONSOLIDATED BALANCE SHEET As of December 31, 2018 and 2017
BALANCE SHEET
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EQUITY
(USD 000’s) Share Translation Other Retained capital reserves reserves earnings Total
EQUITY AT DECEMBER 31, 2016 417 (248) (9) 28,130 28,290
Total comprehensive income for 2017
Income for the year - - - 4,475 4,475
Foreign currency translation adjustments - 1,253 - - 1,253
Total comprehensive income for 2017 - 1,253 - 4,475 5,728
Transactions with owners in 2017
Shares issued 2 - 3 684 689
Dividends - - - (2,910) (2,910)
Share based payment expense - - - 1,597 1,597
Transactions with owners in 2017 2 - 3 (629) (624)
Equity at December 31, 2017 419 1,005 (6) 31,976 33,394
Total comprehensive income for 2018
Income for the year - - - 3,672 3,672
Foreign currency translation adjustments - (169) - - (169)
Total comprehensive income for 2018 - (169) - 3,672 3,503
Transactions with owners in 2018
Shares issued 3 - 2 780 785
Share based payment expense - - - 1,276 1,276
Transactions with owners in 2018 3 - 2 2,056 2,061
Equity at December 31, 2018 422 836 (4) 37,704 38,958
The Notes on the following pages are an integral part of these consolidated financial statements.
ASETEK A/S - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the years ended December 31, 2018 and 2017
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(USD 000’s) Note 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) for the year 3,672 4,475
Depreciation and amortization 14, 15 3,690 2,430
Finance income 9 (205) (84)
Finance costs 9 96 103
Income tax expense (income) 10, 11 1,198 (2,976)
Impairment of intangible assets - 5
Cash receipt (payment) for income tax (118) (43)
Share based payments expense 7 1,276 1,597
Changes in trade receivables, inventories, other assets (3,502) 693
Changes in trade payables and accrued liabilities (2,264) (112)
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 3,843 6,088
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to intangible assets 14 (1,745) (2,426)
Purchase of property and equipment 15 (1,914) (1,872)
NET CASH USED IN INVESTING ACTIVITIES (3,659) (4,298)
CASH FLOWS FROM FINANCING ACTIVITIES
Funds drawn against line of credit (6) 295
Proceeds from issuance of share capital 18 782 686
Payment of dividends 18 - (2,910)
Principal payments on finance leases (321) (162)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 455 (2,091)
Effect of exchange rate changes on cash and cash equivalents (410) 1,089
NET CHANGES IN CASH AND CASH EQUIVALENTS 229 788
Cash and cash equivalents at beginning of period 18,398 17,610
CASH AND CASH EQUIVALENTS AT END OF PERIOD 18,627 18,398
SUPPLEMENTAL DISCLOSURE - NON-CASH ITEMS
Equipment acquired under finance lease 15 $ 134 $ 868
The Notes on the following pages are an integral part of these consolidated financial statements.
ASETEK A/S - CONSOLIDATED CASH FLOW STATEMENT For the years ended December 31, 2018 and 2017
CASH FLOWS
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1. GENERAL INFORMATIONAsetek A/S (‘the Company’), and its subsidiaries (together,
‘Asetek Group’, ‘the Group’ or ‘Asetek’) designs, develops
and markets liquid cooling solutions used in personal
computers, servers and data centers. The Group’s core
products utilize liquid cooling technology to provide
improved performance, acoustics and energy efficiency.
The Company is based in Aalborg, Denmark with offices
in USA, China and Taiwan. The Company’s shares trade
on the Oslo Stock Exchange under the symbol ‘ASETEK’.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the pre-
paration of these consolidated financial statements are
set out below. These policies have been consistently ap-
plied to all the years presented, unless otherwise stated.
2.1. Basis of preparation
The consolidated financial statements have been pre-
pared on a historical cost convention, in accordance with
International Financial Reporting Standards (IFRS) as
adopted by the European Union (EU) and the supple-
mentary Danish information requirements for class D
publicly listed companies.
2.2. Consolidation
The consolidated financial statements comprise the
Company and its consolidated subsidiaries. Subsidiaries
are all entities (including structured entities) over which
the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are
deconsolidated from the date that control ceases. Inter-
company transactions, balances, income and expenses
on transactions between Group companies are eliminat-
ed. Profits and losses resulting from the intercompany
transactions that are recognized in assets are also elimi-
nated. Accounting policies of subsidiaries are consistent
with the policies adopted by the Group.
The Group uses the acquisition method of accounting
to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair
values of the assets transferred, the liabilities incurred and
the equity interests issued by the Group. The consid-
eration transferred includes the fair value of any asset
or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition
date. The Group recognizes any non-controlling interest
in the acquiree on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. The ex-
cess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisi-
tion-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired is recorded as goodwill. If the total of consid-
eration transferred, non-controlling interest recognized
and previously held interest measured is less than the fair
value of the net assets of the subsidiary acquired in the
case of a bargain purchase, the difference is recognized
directly in the income statement.
2.3. Foreign currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity oper-
ates (‘the functional currency’). The functional currency
of the Company’s operations in the United States of
America, Denmark and China are the U.S. dollar, Danish
kroner, and Chinese Yuan Renminbi, respectively. The
consolidated financial statements are presented in U.S.
dollars, which is the Group’s presentation currency.
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transac-
tions and from the translation at year-end exchange rates
of monetary assets and liabilities denominated in foreign
currencies are recognized as operating expense in the
income statement in foreign exchange (loss)/gain.
Group companies that have a functional currency
different from the presentation currency are translated
into the presentation currency as follows:
// Assets and liabilities for each balance sheet
presented are translated at the closing rate at the date
of that balance sheet;
// Income and expenses for each income statement are
translated at average exchange rates;
// All resulting exchange differences are recognized
in other comprehensive income
2.4. Property and equipment
Property and equipment are stated at historical cost less
accumulated depreciation. Subsequent costs are includ-
ed in the asset’s carrying amount or recognized as
a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item
will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of any replaced
part is derecognized. All other repairs and maintenance
are charged to the income statement during the financial
period in which they are incurred.
Depreciation is provided over the estimated useful lives
of the depreciable assets, generally three to five years, us-
ing the straight-line method. The assets’ useful lives and
residual values are reviewed, and adjusted if appropriate,
at the end of each reporting period. Gains and losses on
disposals are determined by comparing the proceeds
with the carrying amount and are recognized as other in-
come or expense in the consolidated income statement.
Property and equipment is grouped as follows:
Group Estimated Useful Life
Leasehold improvements Lesser of 5 years or lease term
Plant and machinery 5 years
Tools, equipment, fixtures 3 to 5 years
NOTES
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2.5. Research and development
Research costs are expensed as incurred. Costs directly
attributable to the design and testing of new or
improved products to be held for sale by the Group are
recognized as intangible assets within development
projects when all of the following criteria are met:
// It is technically feasible to complete the product
so that it will be available for sale;
// management intends to complete the product
and use or sell it;
// there is an ability to use or sell the product;
// it can be demonstrated how the product will
generate probable future economic benefits;
// adequate technical, financial and other resources
to complete the development and to use or sell
the product are available; and
// the expenditures attributable to the product during
its development can be reliably measured.
Directly attributable costs that are capitalized as part of
the product include the employee costs associated with
development. Other development expenditures that do
not meet these criteria are recognized as expense when
incurred. Development costs previously recognized as
expense are not recognized as an asset in a subsequent
period. Development costs recognized as assets are
amortized on a straight-line basis over their estimated
useful lives, which generally range between three and
forty-eight months. Amortization expense related to
capitalized development costs is included in research
and development expense.
2.6. Impairment of non-financial assets
Assets that are subject to amortization are reviewed for
impairment annually, and whenever events or changes in
circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the
higher of 1) an asset’s fair value less costs to sell or 2) its
value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that previously
suffered an impairment are reviewed for possible reversal
of the impairment at each reporting date.
2.7. Financial assets
Recognition and Measurement. The Group determines
the classification of its financial assets at initial recogni-
tion. Financial assets within the scope of IFRS 9 Financial
Instruments are classified as follows:
// ‘Amortized cost’ are financial assets representing con-
tractual cash flows held for collection, where such cash
flows solely represent payment of principal and interest.
// ‘Fair value’. All other financial assets, representing other
debt and equity instruments that do not meet the ‘am-
ortized cost’ criteria, are recognized at fair value. All fair
value movements on financial assets are taken through
the income statement, or for certain debt instruments
that qualify, through other comprehensive income.
For all years presented, the Group’s financial assets
are all classified as ‘amortized cost’.
Impairment of financial assets. For financial assets
carried at amortized cost, the Group measures at the end
of each reporting period the expected credit losses to be
incurred for a financial asset or group of financial assets.
The Company applies the simplified approach for trade
receivables and measures the expected credit losses at
the lifetime expected loss. The Company utilizes historical
experience, evaluation of possible outcomes, current
conditions and forecasts of future economic conditions to
determine expected credit losses incurred, assessing both
specific receivables and groups of receivables that are not
considered impaired. Evidence may include indications
that the debtors or a group of debtors is experiencing
significant financial difficulty, default or delinquency in
interest or principal payments, the probability that they
will enter bankruptcy or other financial reorganization,
and where observable data indicate that there is a
measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that
correlate with defaults.
2.8. Financial liabilities
Recognition and measurement. Financial liabilities
within the scope of IFRS 9 are classified as financial
liabilities at fair value through profit or loss, or other
liabilities. The Group determines the classification of its
financial liabilities at initial recognition. Financial liabilities
are recognized initially at fair value less, in the case of
other liabilities, directly attributable transaction costs.
The measurement of financial liabilities depends on their
classification as follows:
// ‘Financial liabilities at fair value through profit or loss’
are liabilities entered into that do not meet the hedge
accounting criteria as defined by IFRS 9. Gains or losses
on liabilities held for trading are recognized in profit
and loss. At December 31, 2018, the Company has no
financial liabilities measured at fair value through profit
and loss.
// ‘Other liabilities’ – After initial recognition, interest
bearing debt is subsequently measured at amortized
cost using the effective interest rate method. Gains
and losses are recognized in the income statement
when the liabilities are derecognized as well as through
the amortization process. The calculation takes into
account any premium or discount on acquisition and
includes transaction costs and fees that are an integral
part of the effective interest rate.
Offsetting of financial instruments. Financial assets and
financial liabilities are offset, and the net amount reported
in the consolidated balance sheet if, and only if, there is a
currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis,
or to realize the assets and settle the liabilities simulta-
neously.
NOTES
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2.9. Inventories
Inventories are stated at the lower of actual cost or net
realizable value. Cost is determined using the first-in,
first-out (FIFO) method. Net realizable value is the esti-
mated selling price in the ordinary course of business less
estimated costs necessary to make the sale. Adjustments
to reduce the cost of inventory to its net realizable value, if
required, are made for estimated excess, obsolescence, or
impaired balances.
2.10. Trade receivables
Trade receivables are amounts due from customers for
product sold in the ordinary course of business. Trade
receivables are recognized initially at fair value and sub-
sequently measured at amortized cost using the effective
interest method, less any provision for expected credit
losses. If collection is expected in one year or less, trade
receivables are classified as current assets.
2.11. Cash and cash equivalents
Cash and cash equivalents includes cash on hand,
deposits with banks, overdrafts and other short-term
highly liquid investments with original maturities of three
months or less.
2.12. Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares
or options are shown in equity as a deduction, net of tax,
from the proceeds.
2.13. Share-based payments
The Company issues options (or warrants) that allow
management and key personnel to acquire shares in
the Company. Through equity-settled, share-based
compensation plans, the Company receives services
from employees as consideration for the granting of
equity options to purchase shares in the Company at
a fixed exercise price. The fair value of the employee
services received in exchange for the grant of the options
is recognized as an expense. The total amount to be
expensed is determined by reference to the fair value
of the options granted, excluding the impact of any
non-market service and performance vesting conditions.
The grant date fair value of options granted is recog-
nized as an employee expense with a corresponding
increase in equity, over the period that the employees
become unconditionally entitled to the options (vesting
period). Options generally vest over three or four years,
subject to the option holder's continued employment
by the Company. The fair value of the options granted
is measured using the Black-Scholes model, taking into
account the terms and conditions as set forth in the share
option program. Measurement inputs include share price
on measurement date, exercise price of the instrument,
expected volatility, weighted average expected life of
the instruments (based on historical experience and
general option holder behavior), expected dividends,
and the risk-free interest rate. Service and non-market
performance conditions attached to the transactions are
not taken into account in determining fair value. At each
reporting date, the Company revises its estimates of the
number of options that are expected to vest based on the
non-market vesting conditions. The impact of the revision
to original estimates, if any, is recognized in the Statement
of Comprehensive Income, with a corresponding adjust-
ment to equity.
2.14. Current and deferred income tax
The tax expense for the period comprises current and
deferred tax. Tax is recognized in the income statement,
except to the extent that it relates to items recognized in
other comprehensive income or directly in equity. In this
case, the tax is also recognized in other comprehensive
income or directly in equity, respectively.
The current income tax expense is calculated on the basis
of the tax laws enacted or substantively enacted at the
balance sheet date in the countries where the Company
and its subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable
tax regulation is subject to interpretation. Management
establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. However, deferred
tax liabilities are not recognized if they arise from the
initial recognition of goodwill; deferred income tax is not
accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combi-
nation that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been
enacted or substantively enacted by the balance sheet
date and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax
liability is settled.
Deferred income tax assets are recognized only to the
extent that it is probable that future taxable profit will be
available against which the temporary differences can be
utilized.
Deferred income tax assets and liabilities are offset when
there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred
income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same
taxable entity or different taxable entities where there is
an intention to settle the balances on a net basis.
2.15. Revenue recognition and other income
Revenue represents sale of the Group’s products to
customers which are principally resellers and original
equipment manufacturers. Revenue is measured at the
fair value of the consideration received or receivable, and
represents amounts receivable for goods supplied, stated
net of discounts, sales tax, returns and after eliminating
sales within the Group.
The Group’s revenue is predominantly comprised of
shipment of Asetek products in fulfillment of customer
purchase orders. As such, the Company recognizes
revenue when a valid contract is in place and control of
the goods have transferred to the customer. Customer
purchase orders and/or contracts are used as evidence of
an arrangement. Delivery occurs and control of the goods
is deemed to transfer when products are shipped to the
specified location and the risks of obsolescence and
loss have been transferred to the customer. For certain
customers with vendor-managed inventory, delivery does
not occur until product is acquired by the customer from
the vendor-managed inventory location.
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NOTES
The Company assesses collectability based primarily on
the creditworthiness of the customer as determined by
credit checks and customer payment history.
Customers do not generally have a right of return. The
Company has contracts with the United States government
and California state government to deliver products
under time and materials and costs-plus arrangements.
In accordance with IFRS 15 Revenue from Contracts with
Customers, revenue under these contracts is recognized
as costs are incurred or the product or service has been
delivered.
The Company also periodically receives funding from
government agencies and other customers to assist with
the development and testing of specific technologies.
Such awards are recognized over the period that the costs
are incurred and are recorded as an offset to research and
development expense.
Income received as a result of patent litigation settlement
is recorded as other income as an offset to operating
expense in the period the award is granted.
2.16. Leases
Leases in which more than an insignificant portion of the
risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under
operating leases are charged to the income statement on
a straight-line basis over the period of the lease. In 2019,
operating lease accounting will change to conform with
IFRS 16 Leases. See Note 2.23.
The Group leases certain property and equipment.
Leases of property and equipment where the Group has
substantially all the risks and rewards of ownership are
classified as finance leases and the asset is accounted for
as if it has been purchased outright. The amount initially
recognized as an asset is the lower of the fair value of the
leased property and the present value of the minimum
lease payments over the term of the lease.
Finance lease payments are allocated between the
liability and finance charges. The corresponding rental
obligations, net of finance charges, are included in other
long-term payables. Amounts due within one year are
classified as current liabilities. The interest element of the
finance cost is charged to the statement of comprehen-
sive income over the lease period to produce a constant
periodic rate of interest on the remaining balance of the
liability for each period. The equipment acquired under
finance leases is depreciated over the shorter of the useful
life of the asset and the lease term.
2.17. Provisions
A provision is recognized when the Company has a
present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources
will be required to settle the obligation, and the amount
has been reliably estimated. If the impact of time value
is significant, the provision is calculated by discounting
anticipated future cash flow using a discount rate before
tax that reflects the market’s pricing of the present value
of money and, if relevant, risks specifically associated with
the obligation. Provisions are reviewed at each balance
sheet date and adjusted to reflect the current best
estimate.
2.18. Contingent liabilities
Contingent liabilities are not recognized in the financial
statements. Significant contingent liabilities are disclosed,
with the exception of contingent liabilities where the
probability of the liability occurring is remote.
2.19. Segment reporting
Business segmentation. The Group is reporting on two
distinct segments: Gaming and Enthusiast, and Data
center. The two segments are identified by their specific
sets of products and specific sets of customers. The split-
ting of operating expenses between segments is based
on the Company’s best judgment and done by using the
Company’s employee/project time tracking system to
capture total hours charged by project code. Operating
expenses that are not divisible by nature (rent, telecom-
munication expenses, etc.) have been split according to
actual time spent on the two businesses, and the Compa-
ny’s best estimate for attribution. Costs incurred for intel-
lectual property defense and headquarters administration
have been classified separately as headquarters costs and
excluded from segment operating expenses as indicated.
The CEO is the Group’s chief operating decision-maker.
The CEO assesses the performance of each segment
principally on measures of revenue, gross margins, and
adjusted EBITDA.
Geographical segmentation. Each of the Group’s offices
in its three principal geographies fulfills a particular func-
tion that serves the Asetek Group as a whole. The majority
of costs incurred in each of the geographies are generally
incurred for the benefit of the entire Group and not to
generate revenue in the respective geography.
As a result, the financial results of the Group are not
divided between multiple geographical segments for
key operating decision-making. Revenue and assets by
geography is measured and reported in Note 4, Geo-
graphical information.
2.20. Cash flow statement
The cash flow statement is prepared using the indirect
method.
2.21. Critical accounting estimates and assumptions
The preparation of financial statements in conformity
with IFRS requires management to make estimates and
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual
results could differ from those estimates. Areas where
significant judgment has been applied are:
// Valuation of deferred tax assets: deferred income tax
assets are recognized to the extent that the realization
of the tax benefit to offset future tax liabilities is con-
sidered to be probable. In prior periods, the Company
incurred net operating losses which are eligible to offset
future taxable income. In 2017 and 2018, the Company
generated net income and therefore recorded deferred
tax assets representing the estimated amount of net
operating losses that will be utilized to offset future
taxable income, based on income projections for the
next five years. In future periods, management will
continue to assess the probability of realization of the
assets’ value and adjust the valuation in accordance
with IAS 12.
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ASETEK A/S - A N N UA L R E P O RT 2 0 1 8 3 9
// Capitalization of development costs: the Group’s
business includes a significant element of research and
development activity. Under IAS 38, there is a require-
ment to capitalize and amortize development spend
to match costs to expected benefits from projects
deemed to be commercially viable. The application of
this policy involves the ongoing consideration by man-
agement of the forecasted economic benefit from such
projects compared to the level of capitalized costs,
together with the selection of amortization periods
appropriate to the life of the associated revenue from
the product. If customer demand for products or
the useful lives of products vary from management
estimates, impairment charges on intangibles could
increase.
2.22. Defined contribution plan
In 2008, the Company established a defined contribu-
tion savings plan (the “Plan”) in the U.S. that meets the
requirements under Section 401(k) of the U.S. Internal
Revenue Code. This Plan covers substantially all U.S.
employees who meet the minimum age and service
requirements and allows participants to defer a portion of
their annual compensation on a pre-tax basis. Company
contributions to the Plan may be made at the discretion
of the board of directors. Through December 31, 2018,
there have been no contributions made to the Plan by
the Company.
2.23. Changes in accounting policy and disclosures
Applied new standards and amendments included
in Annual Report for 2018. Certain new standards,
amendments to standards, and annual improvements
to standards and interpretations are effective for annual
periods beginning after January 1, 2018 and have been
applied in preparing these consolidated financial state-
ments. The standards and amendments adopted include
IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers. None of these new standards
have a significant effect on the consolidated financial
statements of the Group.
New standards and amendments not applied in the
Annual Report for 2018. A number of new standards
and amendments to standards and interpretations are
effective for annual periods beginning after January 1,
2018 and have not been applied in preparing these
consolidated financial statements. None of these is
expected to have a significant effect on the consolidated
financial statements of the Group:
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NOTES
Standard Content Effective date
EU ENDORSED AS OF DECEMBER 31, 2018
NOT ENDORSED BY EU AS OF DECEMBER 31, 2018
IFRIC 23: Uncertainty over Income Tax Treatments
1-Jan-2019IFRIC 23 clarifies how to apply the recognition and measurement requirements of IAS 12, Income Taxes, when there is uncertainty in income tax treatments. According to IFRIC 23, an entity must determine the probability of the relevant tax authority accepting each tax treatment used in their income tax filing, including considering the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The Company will adopt IFRIC 23 from January 1, 2019 and does not expect it to have a material impact on the consolidated financial statements.
IFRS 16: Leases 1-Jan-2019IFRS 16 is a new standard on the accounting treatment of operating leases. Operating leases will be recognized in the balance sheet with a lease asset and a corresponding lease liability. Asetek will implement the standard from January 1, 2019. The following are the accounting changes that will affect the Company's financial statements under IFRS 16: 1. Right-of-use assets will be recorded for assets that are leased by the Group; currently no lease assets are included in the consolidated balance sheet for operating leases. 2. Liabilities will be recorded for future lease payments in the Company's consolidated balance sheet for the "reasonably certain" period of the lease, which may include future lease periods for which the Group has extension options. Currently liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments. The amount of lease liabilities will not equal the lease commitments reported on December 31, 2018, as they will be discounted to present value and the treatment of termination and extension options may differ. 3. Lease expenses will be for depreciation of right-of-use assets and interest on lease liabilities; interest will typically be higher in the early stages of a lease and reduce over the term. Manage- ment does not expect that implementation of IFRS 16 will have a material impact on the Company's results of operations or its consolidated financial statements.
1-Jan-2019Annual Improvements to IFRS Standards 2015-2017
IAS 12: Accounting for income tax consequences of dividend payments; IAS 23: clarifying which borrowing costs are eligible for capitalization; IFRS 3 & IFRS 11: remeasurement of investor's interest in a joint operation when it obtains control of the business.
Amendments to References to the Conceptual Framework in IFRSStandards
1-Jan-2020Improved definitions of an asset and liability; guidance on reporting financial performance; a new chapter about measurement; clarifications in certain areas such as roles of stewardship, prudence and measurement uncertainty in financial reporting.
Amendment to IFRS 3 BusinessCombinations
1-Jan-2020Improved definition of a business, to help companies determine whether an acquisition made is of a business or a group of assets.
Amendments to IAS 1 and IAS 8:Definition of Material
1-Jan-2020Proposal of a refined definition of material, including criteria regarding obscuring information, whether information is reasonably expected to influence, and reference to primary users of financial statements.
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3. RISK MANAGEMENT AND DEBT
The Group’s activities expose it to a variety of risks: liquidi-
ty risk, market risk (including foreign exchange risk and
interest rate risk) and credit risk. The primary responsi-
bility for Asetek’s risk management and internal controls
in relation to the financial reporting process rests with
executive management.
Asetek’s internal control procedures are integrated in
the accounting and reporting systems and include pro-
cedures with respect to review, authorization, approval
and reconciliation. All entities in the Asetek Group report
financial and operational data to the executive office on a
monthly basis, including commentary regarding financial
and business development. Based on this reporting,
the Group’s financial statements are consolidated and
reported to executive management. Management is in
charge of ongoing efficient risk management, including
the identification of material risks, the development of
systems for risk management, and that significant risks
are routinely reported to the board of directors.
The need for an internal audit function is considered reg-
ularly by the Audit Committee. However, due to the size
of the Company and the established control activities,
the Audit Committee so far considers it unnecessary to
establish an independent internal executive audit board.
As part of risk management, Asetek has a whistle-blower
function for expedient and confidential notification of
possible or suspected wrongdoing.
Liquidity risk. The Group incurred losses from operations
and negative cash flows from operations from inception
through 2015; positive cash flows and net earnings were
first generated in 2016 and have continued in 2017 and
2018. The Group secured liquidity through its initial public
offering of common shares in 2013 and subsequent
equity offerings in 2015. Previously the Group issued
convertible preferred shares, convertible debt and notes
payable to shareholders, and secured bank lines of credit
and trade receivables financing. The Group’s corporate
finance team monitors risk of a shortage of funds through
regular updates and analysis of cash flow projections and
maturities of financial assets and liabilities. The finance
teams also review liquidity, balance sheet ratios (such
as days’ sales outstanding, inventory turns) and other
metrics on a regular basis to ensure compliance both on a
short- and long-term basis.
Asetek will continue to invest its capital principally in the
development and marketing of its cooling products. In
October 2016, the Board of Directors implemented a
dividend policy and paid a cash dividend of NOK1.00 in
2017. In April 2018, at the Annual General Meeting, the
Board was authorized to acquire the Company’s own
shares. When considering payment of dividends or
Asetek share purchases, the Board takes into considera-
tion the Company’s growth plans, liquidity requirements
and necessary financial flexibility.
The following are contractual maturities of financial
liabilities:
AS OF DECEMBER 31, 2018 On Less than 3 3 to 12 1 to 5(USD 000’s) Demand months months years Total
Line of credit (741) - - - (741)
Finance leases - (87) (152) (640) (879)
Trade payables and accrued liabilities - (9,803) (1,017) - (10,820)
(741) (9,890) (1,169) (640) (12,440)
DEBT MATURITIES
AS OF DECEMBER 31, 2017 On Less than 3 3 to 12 1 to 5(USD 000’s) Demand months months years Total
Line of credit (783) - - - (783)
Finance leases - (66) (202) (816) (1,084)
Trade payables and accrued liabilities - (11,985) (1,930) - (13,915)
(783) (12,051) (2,132) (816) (15,782)
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Market risk factors. The Group’s current principal
financial liabilities consist of short-term debt on revolving
lines of credit. The Group’s financial assets mainly com-
prise trade receivables, cash and deposits. The Group’s
operations are exposed to market risks, principally foreign
exchange risk and interest rate risk.
(a) Foreign exchange risk. With few exceptions, the
Group’s inventory purchase and sale transactions are
denominated in U.S. dollars. The Group operates inter-
nationally and is exposed to foreign exchange risk arising
from currency exposures, principally with respect to the
Danish kroner. Foreign exchange risk arises from operat-
ing results and net assets associated with Denmark-based
operations where the Danish krone is the functional
currency. Transactions that are denominated in Danish
kroner result in foreign exchange gains (losses) in the
U.S. dollar-based financial statements, and translation of
the Denmark entity balance sheet accounts from Danish
kroner to U.S. dollars affect the equity balances of the
Group. The Company’s Denmark entity has a revolving
line of credit available totaling 5.5 million Danish kroner
($0.8 million) as of December 31, 2018. The Group does
not enter into derivatives or other hedging transactions
to manage foreign exchange risk. Management mitigates
this exposure through timely settlement of intercompany
operating liabilities.
The ending exchange rate at December 31, 2018 was 6.52
Danish kroner to one U.S. dollar (6.21 to the U.S. dollar
at December 31, 2017). The effect of a 10% strengthen-
ing (weakening) of the Danish kroner against the U.S.
dollar for the reporting period would have resulted in an
increase (decrease) in pre-tax
income for fiscal year 2018 of $565,000 (in 2017, increase
of the pre-tax income of $602,000).
(b) Interest rate risk. As of December 31, 2018, Asetek had
the following debt outstanding that is subject to interest
rate risk:
// Line of credit with Sydbank – 5.5 million Danish kroner
revolving line of credit available to Asetek A/S. Total
line in USD is approximately $0.8 million, $0.74 million of
which was outstanding at December 31, 2018. The line
carries interest at the Danish CIBOR 3 rate plus 2.75
percentage points, which in total was 2.5% at December
31, 2018. Based on the line’s revolving, short-term nature,
interest rate risk is not significant.
Capital and debt management. To date the Company’s
primary focus has been to support its product devel-
opment initiatives, maintain liquidity through use of
financing alternatives, and maximize shareholder value.
The Group manages its capital and debt structure with
consideration of economic conditions. In March 2013,
the Company completed an initial public offering on the
Oslo Stock Exchange, raising net $21.4 million, to support
its market strategies and liquidity needs. In March 2015,
the Company raised $11.6 million of net proceeds through
private placement of 10 million new common shares, at a
price of NOK 10.00 per share. In April 2015, the Company
issued 480 thousand new shares in a public offering at
NOK 10.00 per share, receiving proceeds of $0.6 million.
With regard to future capital needs, the Company will
continue to consider both equity and debt financing
strategies.
Credit risk factors. Credit risk refers to the risk that a
counterparty will default on its contractual obligations
resulting in financial loss to the Group. The Group is
exposed to credit risk primarily through trade receivables
and cash deposits. Management mitigates credit risk
through standard review of customer credit-worthiness
and maintaining its liquid assets primarily with Wells Fargo
Bank in the U.S. and Sydbank in Denmark. The carrying
amount of the financial assets represents the maximum
credit exposure. Trade receivables that are deemed
uncollectible are charged to expense with an offset-
ting allowance recorded against the trade receivable.
Historically, bad debt expense has not been significant.
Certain customers in the Gaming and Enthusiast segment
have accounted for a significant portion of the Company’s
revenues in the years presented, as follows. In 2018, the
Company’s two largest customers accounted for 39%
and 21% of revenue (39% and 20% in 2017), respectively.
At December 31, 2018 two customers represented 32%
and 23% of outstanding trade receivables (37% and 23%
at December 31, 2017), respectively. The reserve for un-
collectible trade accounts was $64,000 at December 31,
2018 and $92,000 at December 31, 2017. The aged trade
receivables and bad debt reserve balances for all years
presented are provided in Note 16.
The maximum exposure to credit risk at the reporting
dates was:
4. GEOGRAPHICAL INFORMATION
The Group operates internationally in several
geographical areas, principally in Asia, Europe and
the Americas.
The following table presents the Group’s revenue and
assets in each of the principal geographical areas:
For the purpose of the above presentation, the informa-
tion pertaining to revenue and current assets is calculated
based on the location of the customers, whereas infor-
mation pertaining to non-current assets is based on the
physical location of the assets. The information pertaining
to current assets is calculated as a summation of assets
such as trade receivables and finished goods inventories
reasonably attributable to the specific geographical area.
NOTES
(USD 000’s) 2018
Revenue Current Non-current assets assets
Asia 60,741 14,301 58
Americas 4,822 4,748 1,602
Europe 1,751 18,065 12,624
TOTAL 67,314 37,114 14,284
(USD 000’s) 2018 2017
Cash and cash equivalents 18,627 18,398
Trade receivables and other 15,625 13,280
Other assets 309 794
MAXIMUM CREDIT EXPOSURE 34,561 32,472
(USD 000’s) 2017
Revenue Current Non-current assets assets
Asia 48,529 11,577 81
Americas 6,480 4,035 2,180
Europe 3,185 18,382 12,921
TOTAL 58,194 33,994 15,182
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5. SEGMENT INFORMATION
The Company reports on two segments, Gaming and
Enthusiast, and Data center. The two segments are
identified by their specific sets of products and specific
sets of customers. The CEO is the Group’s chief operating
decision-maker. The CEO assesses the performance of
each segment principally on measures of revenue, gross
margins, and adjusted EBITDA. The following tables
represent the results by operating segment in 2018 and
2017. Income and expense items below adjusted EBITDA,
to arrive at income (loss) before tax, are provided as sup-
plemental disclosures. Disaggregation of revenue is also
presented for the major markets within each segment.
Condensed income statement- years ended December 31, 2018 2017
(USD 000’s) Not Not Gaming and allocable to Gaming and allocable to Enthusiast Datacenter divisions Total Enthusiast Datacenter divisions Total
Revenue 63,030 4,284 - 67,314 53,227 4,967 - 58,194
Cost of goods sold 38,128 3,014 - 41,142 33,459 3,766 - 37,225
GROSS PROFIT 24,902 1,270 - 26,172 19,768 1,201 - 20,969
Operating costs 4,165 8,608 4,014 16,787 3,777 8,474 2,847 15,098
Litigation settlement received - - - - - - (913) (913)
ADJUSTED EBITDA 20,737 (7,338) (4,014) 9,385 15,991 (7,273) (1,934) 6,784
Depreciation in operating expense 1,784 1,906 - 3,690 1,033 1,397 - 2,430
Share based compensation 293 626 357 1,276 348 813 436 1,597
Financial income (expenses) - - 451 451 - - (1,258) (1,258)
INCOME (LOSS) BEFORE TAX 18,660 (9,870) (3.920) 4,870 14,610 (9,483) (3,628) 1,499
Condensed balance sheet- as of December 31, 2018 2017
(USD 000’s) Not Not Gaming and allocable to Gaming and allocable to Enthusiast Datacenter divisions Total Enthusiast Datacenter divisions Total
TOTAL INVESTMENT 9,714 2,913 26,331 38,958 5,963 2,337 25,094 33,394
TOTAL ASSETS 16,512 4,587 30,299 51,398 15,833 4,832 28,511 49,176
TOTAL LIABILITIES 6,798 1,674 3,968 12,440 9,870 2,495 3,417 15,782
Changes in intangible assets- years ended December 31, 2018 2017
(USD 000’s) Not Not Gaming and allocable to Gaming and allocable to Enthusiast Datacenter divisions Total Enthusiast Datacenter divisions Total
OPENING BALANCE, INTANGIBLE ASSETS 1,312 1,442 - 2,754 902 969 - 1,871
Gross additions 467 1,278 - 1,745 970 1,456 - 2,426
Amortization and other (996) (1,089) - (2,085) (560) (983) - (1,543)
ENDING BALANCE, INTANGIBLE ASSETS 783 1,631 - 2,414 1,312 1,442 - 2,754
(USD 000’s) Revenue
2018 2017
Denmark 172 317
Hong Kong 26,511 23,096
Taiwan 24,005 18,856
USA 4,732 6,337
All others 11,894 9,588
TOTAL 67,314 58,194
(USD 000’s) Non-current assets
2018 2017
Denmark 12,624 12,921
USA 1,602 2,180
China 58 81
TOTAL 14,284 15,182
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6. SALARY COSTS AND REMUNERATIONS
The figures listed include incentive based compensation
for management and staff. Incentive based compensation
is based on a combination of quarterly cash-based re-
wards and periodic grants of options (or warrants) to buy
the Company’s common shares. The above remuneration
for Officers include $72,000 and $50,000 in pension
payments in 2018 and 2017, respectively. The bonus plan
for the CEO is approved by the Board of Directors at the
beginning of the year and the bonus payments for the
CEO and the upper management are reviewed by the
Board of Directors on an annual basis. All bonus plans are
structured to include an absolute dollar cap.
The Company’s CEO has an agreement of twelve
months’ severance pay in case of termination or
termination in connection with change of control.
The Company’s CFO has an agreement of seven
months’ severance pay in case of termination or termi-
nation in connection with change of control. Except for
the Company’s CEO and CFO and other members of
the executive group, no member of the administrative,
management or supervisory bodies has contracts with the
Company or any of its subsidiaries providing for benefits
upon termination of employment.
7. SHARE BASED PAYMENT
Asetek’s Equity Incentive Plan (‘the Plan’) is a share
compensation program where the employees and other
parties that deliver services to the Group have been
granted share options (or warrants). The options, if vested
and executed, will be settled in common shares of the
Company.
The options are granted at the time of employment and,
at the discretion of the Board of Directors, under other
circumstances. The options are granted with exercise
prices equaling the fair market value of the underlying
security. The exercise prices of option grants are deter-
mined based on the closing market price of the shares on
the day of the grant. Share based compensation expense
was $1,276,000 and $1,597,000 for the years ended
December 31, 2018 and 2017, respectively.
The Plan was adopted by the Board of Directors in 2008
and has the following purpose:
// To attract and retain the best available personnel
for positions of substantial responsibility;
// To provide additional incentive to employees,
directors and consultants, and
// To promote the success of the Company’s business.
As of December 31, 2018, there is a total of 2,469,163
common shares authorized under the Plan.
The Company’s shares trade on the Oslo Stock
Exchange, at prices denominated in Norwegian krone
(NOK). The exchange rate at December 31, 2018 of NOK
to USD was 8.71.
NOTES
André S. Eriksen Peter D. Madsen
Common shares 201,186 77,587
Options at $0.96 9,375 9,375
Options at NOK 46.30 53,300 26,500
Warrants at:
NOK 10.50 92,333 50,875
NOK 19.50 106,799 49,837
NOK 36.50 101,523 37,800
NOK 40.10 24,750 10,313
NOK 76.25 132,981 44,215
TOTAL SHARES CONTROLLED 722,247 306,502
Share Ownership of Officers at December 31, 2018:
(USD 000’s) 2018 2017
Salaries 9,036 7,449
Retirement fund contributions 383 305
Social cost 1,075 1,082
Share based payment 1,276 1,597
Other expenses 126 599
TOTAL PERSONNEL EXPENSESBEFORE CAPITALIZATION 11,896 11,032
Capitalized as development cost (1,176) (1,526)
TOTAL PERSONNEL EXPENSESIN STATEMENT OF INCOME 10,720 9,506
AVERAGE NUMBER OF EMPLOYEES 95 93
(USD 000’s) 2018 2017
Research and development 3,007 3,151
Selling, general and administrative 8,889 7,881
Total personnel expenses before capitalization 11,896 11,032
The staff costs are specified as follows:
Compensation to the Board of Directors, Officers and Other Executives*
Other Other
(USD 000’s) Directors Officers Executives Total Directors Officers Executives Total
Salary - 798 932 1,730 - 606 758 1,364
Bonus - 189 301 490 - 154 170 324
Share based 7 357 522 886 82 455 515 1,052
Other 98 127 57 282 84 123 43 250
TOTAL 105 1,471 1,812 3,388 166 1,338 1,486 2,990
2018 2017
2018 2017
Gaming and Enthusiast:
Enthusiast/DIY 50,438 42,467
Gaming/Performance PC 12,592 10,760
Data center market:
OEM 3,866 3,682
Government 418 1,285
TOTAL REVENUE 67,314 58,194
Disaggregation of revenue:
Group Options Granted
Board of directors -
Officers 79,800
Other executives 89,615
Other employees 209,085
TOTAL GRANTED 378,500
Options granted in 2018:
* Other Executives includes the Chief Operating Officer and other members of the executive team who are leaders of the key functions (Engineering, Sales & Marketing, Operations)
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In October 2018, the Company granted 378,500 options
with exercise prices of NOK46.30 per share.In July 2017,
the Company granted 106,999 warrants with exercise
prices of NOK113.00 per share. In April 2017, the Com-
pany granted 509,687 warrants with exercise prices of
NOK76.25 per share.
Movements in the number of share options outstanding
and their related weighted average exercise price are as
follows:
Of the 378,500 options granted with exercise price of
NOK46.30 per share in October 2018, none of these
options were exercisable or forfeited as of December
31, 2018.
The options granted to employees in October 2018
become exercisable over a period of three years.Options
and warrants granted to employees prior to 2018 generally
become exercisable over a period of four years.
The composition of options and warrants outstanding at
December 31, 2018 is as follows:
The Company calculated the fair value of each option
award on the date of grant using the Black-Scholes
option pricing model, which requires subjective assump-
tions, including future stock price volatility and expected
time to exercise. The expected volatility was based on
the historical volatility of the Company’s stock price. The
weighted average remaining contractual term of options
outstanding is 4.3 years. The options granted in October
2018 have an estimated total value of $1.0 million. The
warrants granted in July 2017 have an estimated total
value of $0.6 million. The warrants granted in April 2017
have an estimated total value of $2.2 million.
The following weighted average assumptions were used
for the period indicated.
Exercise price per share Number of shares
USD 0.94 -
USD 0.96 60,260
NOK 10.50 398,285
NOK 19.50 425,738
NOK 33.90 7,170
NOK 36.50 331,560
NOK 40.10 73,550
NOK 46.30 378,500
NOK 76.25 443,937
NOK 113.00 106,999
TOTAL 2,225,999
Activity for exercise prices of: NOK 33.90 to NOK 113.00 2018 Price 2017 Price
Outstanding on January 1 1,097,875 62.41 557,726 53.27
Options/warrants granted 378,500 46.30 616,686 65.36
Options/warrants exercised (82,595) 40.15 (70,494) 36.77
Options/warrants forfeited (52,064) 76.25 (6,043) 68.84
OUTSTANDING ON DECEMBER 31 1,341,716 58.70 1,097,875 62.41
EXERCISABLE ON DECEMBER 31 688,585 53.14 584,066 44.47
Weighted Average Exercise - Price (NOK)
Weighted Average Exercise - Price (NOK)
The weighted average market price per share on the date of exercise for the above shares was NOK 82.96 in 2018 and NOK 101.02 in 2017.
Activity for exercise prices of: USD 0.94 to NOK 19.50 2018 Price 2017 Price
Outstanding on January 1 1,158,363 14.34 1,430,738 14.57
Options/warrants exercised (221,928) 12.44 (248,289) 10.67
Options/warrants forfeited (52,152) 16.59 (24,086) 12.34
OUTSTANDING ON DECEMBER 31 884,283 14.68 1,158,363 14.34
EXERCISABLE ON DECEMBER 31 659,424 14.09 643,591 13.23
Weighted Average Exercise - Price (NOK)
Weighted Average Exercise - Price (NOK)
The weighted average market price per share on the date of exercise for the above shares was NOK 88.72 in 2018 and NOK 86.86 in 2017.
Valuation assumptions 2018 2017
Risk-free interest rate 2.58% - 2.91% 1.60% - 1.78%
Dividend yield 0.0% 0.0%
Expected life of options (years) 4.03 - 6.83 3.58 - 4.07
Expected volatility 66% - 69% 74% - 77%
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8. EXPENSES BY NATURE
NOTES
(USD 000’s) Note 2018 2017
Inventories recognized as cost of sales 17 41,142 37,225
Personnel expenses 6 11,896 11,032
Depreciation and amortization 3,690 2,430
Legal, patent, consultants and auditor 3,283 3,636
Litigation settlement received - (913)
Facilities and infrastructure 1,276 928
Other expenses 3,353 3,546
TOTAL OPERATING EXPENSES BEFORE CAPITALIZATION 64,640 57,884
Less: capitalized costs for development projects 14 (1,745) (2,447)
TOTAL EXPENSES 62,895 55,437
(USD 000’s) 2018 2017
Depreciation and amortization included in:
Research and development 1,700 1,185
Selling, general and administrative 1,990 1,245
TOTAL 3,690 2,430
Depreciation and amortization expense by classification on the income statement is as follows:
Included as an offset to operating expense in 2017 is litigation settlement received, which represents net awards frompatent litigation and is reported as other income in the consolidated statement of comprehensive income.
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9. FINANCE COSTS AND INCOME
10. INCOME TAXES
The tax (expense) benefit on the Group's income before
tax differs from the theoretical amount that would arise
using the weighted average tax rate applicable to profits
of the consolidated entities as follows:
The Company's consolidated weighted average tax rate
for 2018 decreased from 2017 due to a reduction in the
corporate tax rate in the U.S. in 2018.
11. DEFERRED INCOME TAX
At December 31, 2018, potential income tax assets totaled
$8.7 million (2017: $9.3 million) in respect of remaining
losses to be carried forward amounting to $57.4 million
that should be applied to different tax rates. The losses
can be carried forward against future taxable income. In
2018, the Group recorded deferred tax assets totaling
$7.5 million ($7.8 million in 2017), which represents the net
tax benefit that the Company considers probable to be
realized in the future, based on Company budget for the
following year and estimates for the subsequent years.
In accordance with IAS 12, the Company recognizes
deferred tax assets arising from unused tax losses or tax
credits only to the extent that the entity has sufficient
taxable temporary differences or there is convincing oth-
er evidence that sufficient taxable profit will be available
against which the unused tax losses or unused tax credits
can be utilized by the Company. The estimated tax ben-
efit is calculated considering historical levels of income,
expectations and risks associated with estimates of future
taxable income.The calculation utilizes the statutory tax
rates that are expected to apply to taxable income for the
years in which the asset is expected to be realized.
Losses of the U.S. parent company and U.S. subsidiary will
begin to expire in 2028 for carryforward purposes. Losses
of the Denmark subsidiary do not expire.
Expiration of the carryforward of losses is summarized as
follows:
(USD 000’s) 2018 2017
INCOME BEFORE TAX 4,870 1,499
Tax calculated at domestic rates applicable to profits/losses in respective countries (1,122) (630)
Tax effects of:Foreign R&D tax credit - 88
Expenses not deductible for taxpurposes (305) (28)
Benefit of tax losses recognized 415 3,684
Temporary differences between
book and tax (200) (138)
TAX (EXPENSE) BENEFIT (1,198) 2,976
(USD 000’s) Tax effected loss
Expire in years 2028 to 2034 1,462
Do not expire 5,996
TOTAL 7,458
(USD 000’s) 2018 2017
Foreign exchange gain (loss) 342 (1,239)
Interest cost on line of credit (4) (5)
Interest cost on finance leases (31) (37)
Interest income 205 84
Other banking and finance fees (60) (61)
TOTAL FINANCE INCOME 451 (1,258)
(USD 000’s) 2018 2017
Current income tax (expense) benefit (1,198) 73
Deferred income tax benefit - 2,903
TAX (EXPENSE) BENEFIT (1,198) 2,976
Tax on profit/loss for the year is specified as follows:
(USD 000’s) 2018 2017
Potential tax assets fromprior year losses 8,673 9,256
Tax assets not consideredprobable to realize before expiration (1,215) (1,478)
DEFERRED INCOME TAX ASSETS 7,458 7,778
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12. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the
profit or loss attributable to equity holders of the Company
by the weighted average number of common shares
outstanding during the period. Diluted earnings per share
is calculated by adjusting the number of common shares
outstanding used in the Basic calculation for the effect
of dilutive equity instruments, which include options,
warrants and debt or preferred shares that are con-
vertible to common shares, to the extent their inclusion
in the calculation would be dilutive.
13. FINANCIAL INSTRUMENTS CATEGORY AND FAIR VALUE ESTIMATION
The Company uses the following valuation methods
for fair value estimation of its financial instruments:
// Quoted prices (unadjusted) in active markets (Level 1).
// Inputs other than quoted prices included within level
1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices)
(Level 2).
// Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
All of the Company’s financial assets as of December
31, 2018 are classified as ‘amortized cost’ having fixed or
determinable payments that are not quoted in an active
market (Level 3). As of December 31, 2018, all of the Com-
pany’s financial liabilities are carried at amortized cost.
The Company believes that book value approximates
fair value for all financial instruments as of December 31,
2018. The values of the Group’s assets and liabilities are
as follows:
NOTES
2018 2017
Income attributable to equity holders of the Company (USD 000’s) $3,672 $4,475
Weighted average number of common shares outstanding (000’s) 25,447 25,129
BASIC EARNINGS PER SHARE $0.14 $0.18
Weighted average number of common shares outstanding (000’s) 25,447 25,129
Instruments with potentially dilutive effect:Warrants and options (000’s) 940 1,372
Weighted average number of common shares outstanding, diluted (000’s) 26,387 26,501
DILUTED EARNINGS PER SHARE $0.14 $0.17
As of December 31, 2018
(USD 000’s) Amortized cost
Assets as per balance sheet:
Trade receivables and other 15,625
Cash and cash equivalents 18,627
34,252
Liabilities at fair value Other financial liabilities (USD 000’s) through profit and loss at amortized cost Total
Liabilities as per balance sheet:
Long-term debt - 641 641
Short-term debt - 980 980
Trade payables and accrued liabilities - 10,819 10,819
- 12,440 12,440
As of December 31, 2018
As of December 31, 2017
(USD 000’s) Amortized cost
Assets as per balance sheet:
Trade receivables and other 13,280
Cash and cash equivalents 18,398
31,678
Liabilities at fair value Other financial liabilities (USD 000’s) through profit and loss at amortized cost Total
Liabilities as per balance sheet:
Long-term debt - 816 816
Short-term debt - 1,051 1,051
Trade payables and accrued liabilities - 13,915 13,915
- 15,782 15,782
As of December 31, 2017
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14. INTANGIBLE ASSETS
The Group routinely incurs costs directly attributable to
the design and testing of new or improved products to be
held for sale. These costs are capitalized
as intangible assets and amortized over the estimated
useful lives of the products, typically three to forty-eight
months. The following table presents a summary of these
development projects.
15. PROPERTY AND EQUIPMENT
The following table presents a summary of property and
equipment activity.
At December 31, 2018, property and equipment
includes leased equipment at a gross value of
approximately $1,538,000 which had accumulated
amortization of $839,000. (2017: gross value
of $1,477,000 and accumulated amortization of
$476,500).
Impairment tests are performed annually on developed
assets and assets under construction. Impairment tests
are also performed on completed assets whenever there
are indications of a need for write-offs and for assets still
in development regardless of whether there have been
indications for write downs. If the value of expected
future free cash flow of the specific development project
is lower than the carrying value, the asset is written down
to the lower value.
The booked value includes capitalized salary expenses
and other net assets for the cash flow producing project.
Expected future free cash flow is based on budgets
and anticipations prepared by management. The main
parameters are the development in revenue, EBIT and
working capital.
(USD 000’s) 2018 2017
COST:
Balance at January 1 8,682 6,758
Additions 1,745 2,447
Deletions - completion of useful life (1,793) (458)
Impairment loss (210) (65)
BALANCE AT DECEMBER 31 8,424 8,682
ACCUMULATED AMORTIZATION AND IMPAIRMENT LOSSES:
Balance at January 1 (5,928) (4,887)
Amortization for the year (2,085) (1,538)
Amortization associated with deletions 1,793 437
Amortization associated with impairment losses 210 60
BALANCE AT DECEMBER 31 (6,010) (5,928)
CARRYING AMOUNT 2,414 2,754
Other fixtures, Leasehold fittings, tools(USD 000’s) improvements Machinery equipment Total
COST:
Balance at January 1, 2017 360 2,799 992 4,151
Additions 415 1,603 724 2,742
Disposals - (376) (36) (412)
Exchange rate difference 57 393 156 606
BALANCE AT DECEMBER 31, 2017 832 4,419 1,836 7,087
Balance at January 1, 2018 832 4,419 1,836 7,087
Additions 584 885 579 2,048
Disposals - (28) (54) (82)
Exchange rate difference (53) (210) (100) (363)
BALANCE AT DECEMBER 31, 2018 1,363 5,066 2,261 8,690
ACCCUMULATED DEPRECIATIONS:
Balance at January 1, 2018 (200) (1,798) (468) (2,466)
Disposals - 374 36 410
Depreciations for the year (86) (597) (209) (892)
Exchange rate differences (20) (202) (61) (283)
BALANCE AT DECEMBER 31, 2017 (306) (2,223) (702) (3,231)
Balance at January 1, 2018 (306) (2,223) (702) (3,231)
Disposals - 28 54 82
Depreciations for the year (230) (973) (401) (1,604)
Exchange rate differences 17 108 41 166
BALANCE AT DECEMBER 31, 2018 (519) (3,060) (1,008) (4,587)
CARRYING AMOUNT AT DECEMBER 31, 2017 526 2,196 1,134 3,856
CARRYING AMOUNT AT DECEMBER 31, 2018 844 2,006 1,253 4,103
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16. TRADE RECEIVABLES AND OTHER
Trade receivables are non-interest bearing and are
generally on payment terms of Net 30 days.
The trade receivables of Asetek Danmark A/S carry
a general lien of 6 million Danish krone ($1.0 million),
representing collateral on Sydbank’s engagement with
the Company. The carrying amount of trade receivables is
approximately equal to fair value due to the short term to
maturity. Regarding credit risks, refer to Note 3.
A summary of the activity in the provision
for uncollectible accounts is as follows:
17. INVENTORIES
A summary of the activity in the provision
for inventory reserves is as follows:
NOTES
(USD 000’s) Total Not yet due 1 to 30 days 31 to 60 days Over 60 days
December 31, 2018 14,626 12,170 2,281 111 64
December 31, 2017 12,801 10,222 2,392 24 163
Past due:
(USD 000’s) 2018 2017
Gross trade receivables 14,626 12,801
Provision for uncollectible accounts (64) (92)
NET TRADE RECEIVABLES 14,562 12,709
Other receivables and assets 1,063 571
TOTAL TRADE RECEIVABLES AND OTHER 15,625 13,280
(USD 000’s) 2018 2017
Balance at January 1 (92) (37)
Additions (64) (92)
Reversals 92 37
BALANCE AT DECEMBER 31 (64) (92)
(USD 000’s) 2018 2017
Balance at January 1 (137) (118)
Additions (199) (137)
Write-offs 137 118
BALANCE AT DECEMBER 31 (199) (137)
(USD 000’s) 2018 2017
Raw materials and work-in-process 1,249 843
Finished goods 1,812 1,610
Total gross inventories 3,061 2,453
Less: provision for inventory reserves (199) (137)
TOTAL NET INVENTORIES 2,862 2,316
(USD 000’s) 2018 2017
Inventories recognized as cost of sales during the period (41,142) (37,225)
Write-down of inventories to net realizable value (199) (137)
Credit Loss Provision Matrix
(USD 000’s) Not yet due 1 to 30 days 31 to 60 days over 60 days Total
Gross carrying amount 12,170 2,281 111 64 14,626
Expected credit loss rate 0.1% 1.2% 10% 20%
Lifetime expected credit loss (12) (28) (11) (13) (64)
Past due
The aging of trade receivables as of the reporting date is as follows:
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18. SHARE CAPITAL
The Company has reserved 1,150 thousand shares (4.5%
of total shares, nominal value DKK 115 thousand) for
future exercises of options. In 2018, a total of 305 thou-
sand options (1.2% of total shares, nominal value DKK 31
thousand) were exercised resulting in $0.8 million funds
received by the Company. In 2017, a total of 319 thousand
options (1.2% of total shares, nominal value DKK 31 thou-
sand) were exercised and $0.7 million funds received by
the Company.As of December 31, 2018, there are 25,540
thousand common shares outstanding with a nominal
value of 0.10 DKK per share and 245 thousand shares
(1% of total shares, nominal value DKK 25 thousand) held
in treasury. Included in equity is a reserve for treasury
shares of approximately $4,000 at December 31, 2018.
A dividend associated with results of the year ended
December 31, 2016 of NOK1.00 per share, for a total
payout of $2.9 million, was paid in 2017. No dividend was
paid in 2018.
19. NET DEBT
The following is a summary of the Company’s outstanding
and net debt:
Asetek A/S Danmark line of credit. In September 2012,
the Company entered into a revolving line of credit
agreement with Sydbank. The line is collateralized by the
trade receivables of Asetek Danmark A/S and is payable
on demand. At December 31, 2018, the total line was 5.5
million Danish kroner, which equates to $843 thousand
at December 31, 2018. Interest on the line is payable
monthly at the Danish CIBOR 3 rate plus 2.75 percentage
points, which in total was 2.5% at December 31, 2018. As
of December 31, 2018, the Company had 4.83 million
Danish kroner ($741 thousand) outstanding on the line.
(4.86 million Danish kroner outstanding at December 31,
2017).
Refer to ‘Shareholder information’ in this report for information on the composition of Asetek shareholders.
(USD 000’s) 2018 2017
Common shares outstanding - January 1 25,235 24,919
Options and warrants exercised and shares issued 305 316
COMMON SHARES OUTSTANDING - DECEMBER 31 25,540 25,235
The following table summarizes common share activity in the years presented:
(USD 000’s) 2018 2017
Line of credit (741) (783)
Finance leases - due within one year (239) (268)
DEBT INCLUDED IN CURRENT LIABILITIES (980) (1,051)
Finance leases - due after one year (640) (816)
TOTAL DEBT (1,620) (1,867)
Less: cash and equivalents 18,627 18,398
NET DEBT 17,007 16,531
The following is a summary of the Company’s outstanding and net debt:
(USD 000’s) 2018 2017
Beginning balance (783) (414)
Net paid (drawn) on line of credit 6 (295)
Foreign exchange impact 36 (74)
ENDING BALANCE (741) (783)
Reconciliation of liability for line of credit:
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20. LEASES
Operating leases. The Company leases some of its facili-
ties under noncancelable operating leases. Total expense
from operating leases was $662,000 in 2018 ($584,000
in 2017).
The Company’s office space in Aalborg, Denmark
is under lease through July 2025. The Company
subleased a portion of this facility to another tenant
and under the sublease agreement received payments
totaling $88,000 for rent and expenses during the year
ended December 31, 2017. The sublease ended June
30, 2017. The Company’s office in San Jose, California is
under lease through December 2023, with an available
option to terminate without penalty beginning in January
2021.
Future minimum operating lease payments are as follows
as of the balance sheet date:
Finance leases. The Company has finance leases out-
standing for manufacturing, engineering and test equip-
ment and the leases generally have terms of 60 months.
There are no lease commitments beyond five years.
Future minimum lease payments under finance leases are
as follows as of the respective balance sheet date:
21. TRANSACTIONS WITH RELATED PARTIES
The Company’s former chairman (retired October 2018)
was a member of the board of directors of a reseller of
Company products during his tenure on the Asetek
board. In the ten month period of 2018 during which he
was associated with Asetek, the Company had sales to
this reseller of $23.2 million, which represented 43% of
Asetek’s total revenues during the period ($22.7 million
representing 39% of total revenues in the full year 2017).
The Company’s CEO serves as Chairman of the Board for
a vendor that supplies information technology services to
the Company. In 2018, the Company purchased services
totaling approximately $0.5 million ($0.4 million in 2017)
from this vendor. At December 31, 2018 and 2017, the
Company had outstanding payables to this vendor of
$36,000 and $24,000, respectively.
NOTES
(USD 000’s) 2018 2017
Minimum operating leasepayments due:
In the following year 547 582
In the second year 569 399
In the third year 548 399
In the fourth year 552 395
In the fifth year and thereafter 1,160 1,413
3,376 3,189
(USD 000’s) 2018 2017
Minimum finance lease
payments as of December 31 936 1,161
Less: amount representinginterest (57) (77)
TOTAL OBLIGATIONSUNDER FINANCE LEASES 879 1,084
Obligations under financeleases due within one year 239 268
Obligations under financeleases due after one year 640 816
879 1,084
(USD 000’s) 2018 2017
Beginning balance 1,084 374
Additions to finance leases 134 789
Finance lease payments (321) (162)
Foreign exchange impact (18) 83
ENDING BALANCE 879 1,084
Reconciliation of finance lease liability
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22. SUBSIDIARIES 23. AUDIT FEES
The Group’s principal auditors perform audits for all of
Asetek’s entities except for the Xiamen, China subsidiary,
which is audited by a local firm. The Group’s principal
auditors received a total fee of $227,000 and $175,000 in
2018 and 2017, respectively. Tax services provided by the
Company’s principal auditors in 2018 included advisory
regarding deferred taxes and transfer pricing.
ASETEK A/SAALBORG , DENMARK
ASETEK HOLDING, INCDELAWARE, USA
ASETEK USA, INCSAN JOSE, CA USA
ASETEK DANMARK A/S
AALBORG , DENMARK
XIAMEN ASETEK COMPUTER INDUSTRY CO., LTD
XIAMEN, CHINA
The following entities are included in the consolidated accounts:
Company Domicile Stake Voting Share Activity
Asetek A/S Denmark 100% 100% Trading
Asetek Holdings, Inc. USA 100% 100% Inactive
Asetek USA, Inc. USA 100% 100% Trading
Asetek Danmark A/S Denmark 100% 100% Trading
Xiamen Asetek Computer Industry Co., Ltd. China 100% 100% Trading
(USD 000’s) 2018 2017
Statutory audit 100 128
Other assurance services 6 2
Tax services 80 45
Remuneration consulting 41 -
TOTAL 227 175
The fee is distributed between these services:During 2018, the Company absorbed the operations of Asetek International Aps into other entities in
order to optimize the organizational structure.
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24. BOARD OF DIRECTORS
The members of the Board of Directors have
reported, that they had the below listed other
director positions as of the date of this filing.
For the year 2018, the board members have
been compensated as listed below.
NOTES
The members of the Board of Directors have reported, that they had the below listed other director positions as of the date of this filing. For the year 2018, the board members have been compensated as listed below.
Board of Directors 2018 Compensation and Current Holdings
Name and other board positions Asetek equity holdings Shares 2018 Cash Compensation
CHRIS CHRISTOPHER Owned shares 55,840 $ 33,333
Rocky Mountain Innosphere - Board member Options @ $0.96 17,760
CloudGen - Board member Warrants @ NOK10.50 15,654
Warrants @ NOK19.50 14,757
Warrants @ NOK36.50 12,822
Warrants @ NOK40.10 11,000
Warrants @ NOK76.25 4,400
JIM MCDONNELL Owned shares 16,400 $ 33,333
None Warrants @ NOK10.50 15,654
Warrants @ NOK19.50 14,757
Warrants @ NOK33.90 6,408
Warrants @ NOK76.25 4,400
JØRGEN SMIDT Owned shares 16,600 $ -
Flatfrog AB - Board member
Microtask OY - Board member
FreeSpee - Board member
MARIA HJORTH None $ -
VP Securities A/S - Board member
SAMUEL SZTEINBAUM Not reported $ 26,667
Board term ended October 23, 2018
KNUT ØVERSJØEN Not reported $ 6,667
Board term ended April 25, 2018
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25. POST BALANCE SHEET EVENTS
The Company has evaluated the period after December
31, 2018 up through the date of the Statement by Man-
agement and determined that, other than the following,
there were no transactions or events that required
recognition or disclosure in the Company's financial
statements:
On January 23, 2019, the Company filed a patent in-
fringement lawsuit against CoolIT Systems, Inc. ("CoolIT")
in the U.S. Northern District of California. The Company
seeks judgment that CoolIT infringes five of Asetek's
patents.
26. CONTINGENT LIABILITIES
Legal proceedings. In the ordinary course of conducting
our business, the Company is involved in various
intellectual property proceedings, including those in
which it is a plaintiff that are complex in nature and
have outcomes that are difficult to predict. Asetek
records accruals for such contingencies to the extent
that it is probable that a liability will be incurred and
the amount of the related loss can be reasonably
estimated. The Company’s assessment of each matter
may change based on future unexpected events. An
unexpected adverse judgment in any pending litigation
could cause a material impact on the Group’s
business operations, intellectual property, results of
operations or financial position. There are no material
updates to matters previously reported on the Asetek
2017 Annual Report, except:
In April 2016, Asetek initiated patent infringement pro-
ceedings against Cooler Master and Coolergiant before
the District Court The Hague, pertaining to commerce
in The Netherlands. In the case against Cooler Master,
by decision on September 20, 2017, the Court dismissed
Asetek’s claim. Asetek appealed the decision, and a court
hearing is scheduled for March 18, 2019. The case against
Coolergiant has been stayed, pending final judgment in
the Cooler Master case.
On September 30, 2014, Asia Vital Components Co.,
Ltd. filed suit against Asetek Danmark A/S in the Eastern
District of Virginia, requesting a declaratory judgment
of non-infringement and invalidity of Asetek's U.S.
Patents 8,240,362 and 8,245,764. Asetek disputes these
allegations. In December 2016 the court granted Asetek’s
motion to transfer the case to the Northern District of
California. A jury trial is scheduled to begin in May 2019.
In 2017, Coolergiant GmbH filed suit against Asetek
Danmark A/S in Mannheim District Court requesting
declaration of non-infringement in Germany of an Asetek
patent. The Company disputed the allegations and filed
counterclaim motions. In November 2018, the Court
ruled that the named Coolergiant products infringe on
Asetek’s patent and granted Asetek claims for injunctive
relief, rendering of accounts, recall and destruction.
Coolergiant has appealed the decision. The appeal is
pending, and the next hearing date has not yet been set.
Other significant commitments of the Company are ref-
erenced within the respective Notes to these consolidated
financial statements.
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Asetek A/S
CVR-number: 3488 0522
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ANNUAL REPORT 2018, PARENT COMPANYFor year ended December 31, 2018
ANNUAL REPORT 2018, PARENT COMPANYFor year ended December 31, 2018
L I Q U I D CO O L I N G DONE RIGHT
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(USD 000’s) Note 2018 2017
Service fees 11 3,312 1,233
TOTAL REVENUE 3,312 1,233
Research and development 3, 4, 5 (245) (328)
Selling, general and administrative 3, 4, 5 (2,979) (2,926)
TOTAL OPERATING EXPENSES (3,224) (3,254)
OPERATING LOSS 88 (2,021)
Foreign exchange (loss)/gain 6 (68) (22)
Finance income 6 263 125
Finance costs 6 (45) (69)
TOTAL FINANCIAL INCOME 150 34
INCOME (LOSS) BEFORE TAX 238 (1,987)
Income tax 7 (334) 206
LOSS FOR THE YEAR (96) (1,781)
Other comprehensive income items that may be reclassified to profit or loss in subsequent periods:
Foreign currency translation adjustments - -
TOTAL COMPREHENSIVE LOSS (96) (1,781)
All operations are continuing.
COMPREHENSIVE INCOME STATEMENT, PARENT COMPANYFor the years ended December 31, 2018 and 2017
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BALANCE SHEET, PARENT COMPANYAs of December 31, 2017 and 2016
(USD 000’s) Note 2018 2017
ASSETS
NON-CURRENT ASSETS
Investments in subsidiaries 8 20,100 20,100
Receivables from subsidiaries 9 2,134 551
Deferred income tax assets 33 118
TOTAL NON-CURRENT ASSETS 22,267 20,770
CURRENT ASSETS
Other assets 14 100
Cash and cash equivalents 11,586 10,583
TOTAL CURRENT ASSETS 11,600 10,684
TOTAL ASSETS 33,867 31,454
EQUITY AND LIABILITIES
EQUITY
Share capital 10 422 419
Retained earnings 32,626 30,665
Translation and other reserves (4) (6)
TOTAL EQUITY 33,044 31,078
CURRENT LIABILITIES
Accrued liabilities 563 375
Accrued compensation and employee benefits 245 -
Trade payables 15 -
TOTAL CURRENT LIABILITIES 823 375
TOTAL LIABILITIES 823 375
TOTAL EQUITY AND LIABILITIES 33,867 31,454
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Share Translation Other Retained(USD 000’s) capital reserves reserves earnings Total
EQUITY AT DECEMBER 31, 2016 417 - (9) 33,075 33,483
Total comprehensive income for 2017
Loss for the year - - - (1,781) (1,781)
TOTAL COMPREHENSIVE LOSS FOR 2017 - - - (1,781) (1,781)
Transactions with owners in 2017
Shares issued 2 - 3 684 689
Dividends - - - (2,910) (2,910)
Share based payment expense - - - 1,597 1,597
Transactions with owners in 2017 2 - 3 (629) (624)
EQUITY AT DECEMBER 31, 2017 419 - (6) 30,665 31,078
Total comprehensive income for 2018
Loss for the year - - - (96) (96)
TOTAL COMPREHENSIVE INCOME FOR 2018 - - - (96) (96)
Transactions with owners in 2018
Shares issued 3 - 2 780 785
Share based payment expense - - - 1,276 1,276
Transactions with owners in 2018 3 - 2 2,056 2,061
EQUITY AT DECEMBER 31, 2018 422 - (4) 32,626 33,044
STATEMENT OF CHANGES IN EQUITY, PARENT COMPANY
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(USD 000’s) Note 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year (96) (1,781)
Share based payments expense 4 1,276 1,597
Income tax expense (income) 334 (206)
Changes in other current assets 87 (3)
Changes in trade payables and accrued liabilities 200 (85)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,801 (478)
CASH FLOWS FROM INVESTING ACTIVITIES
Net receipts from (payments to) subsidiaries 9 (1,584) (435)
NET CASH USED IN INVESTING ACTIVITIES (1,584) (435)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of share capital 10 785 686
Dividends 10 - (2,910)
NET CASH PROVIDED BY FINANCING ACTIVITIES 785 (2,224)
Effect of exchange rate changes on cash and cash equivalents - -
NET CHANGES IN CASH AND CASH EQUIVALENTS 1,003 (3,136)
Cash and cash equivalents at beginning of period 10,583 13,719
CASH AND CASH EQUIVALENTS AT END OF PERIOD 11,586 10,583
STATEMENT OF CASH FLOWS, PARENT COMPANYFor the years ended December 31, 2018 and 2017
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1. GENERAL INFORMATIONReference is made to Note 1 to the Consolidated
Financial Statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The 2018 financial statements for Asetek A/S have been
prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by IASB and
adopted by the EU.
The financial statements are presented in U.S. Dollars
(USD), which is the functional currency.
The accounting policies for the Parent Company are
the same as for the Asetek Group, as per Note 2 to the
consolidated financial statements, with the exception
of the items listed below.
2.1. Dividends on investments in subsidiaries,
joint ventures and associates.
Dividends on investments in subsidiaries, joint ventures
and associates are recognized as income in the income
statement of the Parent Company in the financial year
in which the dividend is declared.
2.2. Investments in subsidiaries, joint ventures and
associates. Investments in subsidiaries, joint ventures and
associates are measured atthe lower of cost or the recov-
erable amount. An impairment test on the investment in
subsidiaries is performed if the carrying amount of the
subsidiaries’ net assets exceeds the carrying value of the
Parent Company’s investments.
3. TOTAL OPERATING EXPENSES Operating expenses consisted of the following for the
year ended December 31,
4. PERSONNEL EXPENSES Total personnel costs for the year ended December 31,
The average number of employees in the Parent company
is two for both years presented. The figures listed above
include a portion of the executive management’s cash
compensation based on an estimate of the actual resourc-
es allocated to the management of the parent company.
Also, the figures include incentive based compensation
in the form of share options and warrants granted to
employees in the Asetek Group. Refer to Notes 6 and 7
in the Consolidated Financial Statements for information
regarding incentive compensation programs and manage-
ment remuneration.
Remuneration of the Group Board of Directors is speci-
fied in Note 6 to the Consolidated Financial Statements.
The Company’s share based incentive pay program
is described in Note 7 of the Consolidated Financial
Statements.
5. AUDIT FEES Tax services provided by the Company’s principal
auditors in 2018 included advisory regarding deferred
taxes and transfer pricing. The Company's subsidiary in
Xiamen, China is audited by a local firm.
6. FINANCIAL INCOME AND COST
7. INCOME TAX
Reference is made to Notes 10 and 11 to the
Consolidated Financial Statements.
8. INVESTMENT IN SUBSIDIARIES
NOTES
(USD 000’s) 2018 2017
Personnel expenses (Note 4) 2,505 2,626
Legal, consultants and auditor 471 425
Other expenses 249 203
TOTAL EXPENSES 3,224 3,254
(USD 000’s) 2018 2017
Salaries, pension and other 1,228 1,029
Share based payment 1,276 1,597
TOTAL PERSONNEL EXPENSES 2,505 2,626
Total personnel costs are specified as follows:
(USD 000’s) 2018 2017
Research and development 245 328
Selling, general and administrative 2,260 2,299
TOTAL PERSONNEL EXPENSES 2,505 2,626
(USD 000’s) 2018 2017
Statutory audit 56 85
Other assurance services 6 2
Tax services 62 45
Remuneration consulting 41 -
TOTAL 165 132
(USD 000’s) Investment in Asetek Holdings, Inc.
Balance at December 31, 2016 20,100Additions -
Balance at December 31, 2017 20,100Additions -
Balance at December 31, 2018 20,100
Carrying amount at December 31, 2016 20,100
Carrying amount at December 31, 2017 20,100
Carrying amount at December 31, 2018 20,100
(USD 000’s) 2018 2017
FOREIGN CURRENCY EXCHANGE (LOSS) GAIN (68) (22)
Interest income on loans to subsidiaries 115 57
Interest from bank accounts 148 68
TOTAL FINANCE INCOME 263 125
Interest cost on loans from
subsidiaries (42) (65)
Other finance expense (3) (4)
TOTAL FINANCE COST (45) (69)
ASETEK A/S - ANNUAL REPORT 2018 63
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Asetek A/S acquired 100% of Asetek Holdings, Inc.
through the exchange of shares in February 2013.
At the time of acquisition, Asetek Holdings, Inc. had
negative net equity, resulting in the initial investment to
be valued at zero. Asetek Holdings, Inc. represents Asetek
A/S’s only direct investment in subsidiaries. Refer to Note
22 of the Consolidated Financial Statements for addition-
al information regarding the subsidiaries of Asetek A/S.
9. RECEIVABLES FROM SUBSIDIARIES
The fair value of receivables corresponds in all material
respects to the carrying amount. As of December 31, 2018
and 2017, there is no credit loss provision deemed neces-
sary for receivables from subsidiaries.
10. EQUITYA dividend pertaining to the year ended December 31,
2016 of NOK1.00 per share, for a total payout of $2.9
million, was paid in 2017. Reference is made to Note 18 to
the Consolidated Financial Statements.
11. TRANSACTIONS WITH RELATED PARTIESAsetek A/S charges its subsidiaries a management
service fee. Reference Notes 8 & 9 regarding transactions
with subsidiaries. With regard to transactions with related
parties that are not subsidiaries, reference is made to
Note 21 to the Consolidated Financial Statements.
12. EVENTS AFTER THE REPORTING PERIOD Reference is made to Note 25 to the Consolidated
Financial Statements.
13. CONTINGENT LIABILITIES The Danish group enterprises are jointly and severally
liable for tax on group income subject to joint taxa-
tion, as well as for Danish withholding taxes by way of
dividend tax, royalty tax, tax on unearned income and
any subsequent adjustments to these. Asetek A/S has
executed a guarantee to its Group’s principal bank,
Sydbank, for all outstanding matters with its wholly
owned subsidiary, Asetek Danmark A/S.
Reference is made to Note 26 to the Consolidated
Financial Statements.
As of December 31,
(USD 000’s) 2018 2017
Asetek Danmark A/S 1,385 349
Asetek USA, Inc. 508 (1)
Asetek Xiamen 155 124
Asetek Holdings, Inc. 85 79
Net receivables from subsidiaries 2,134 551
Average effective interest rate 7.0% 6.1%
Asetek A/S
Assensvej 2
DK-9220 Aalborg East
Denmark
Phone: +45 9645 0047
Fax: +45 9645 0048
Web: www.asetek.com
Mail: [email protected]